Global Crisis/Innovation Blog

How to Play the China Card

By Shlomo Maital

    China’s economy grew by 9.5% in the year to the second quarter,  cooling slightly.   As America struggles with 9.2 per cent unemployment, and Europe seems impotent to resolve the euro crisis now spreading to Italy,  China’s market seems one of the few places where new and old businesses can find growth.

   But where? And how?

   A new McKinsey   report provides suggestions, from their office in Shanghai. Here are some of their recommendations, based on five key sectors:

  • New strategic industries are singled out for global leadership.
  •  Domestic-consumption engines drive consumer growth in the homeland.
  •  Restructurers are under government mandate to change.
  •  Reinventors are mature industries that must innovate and reinvest to close the gap with global leaders.
  •  Social utilities are large state-owned enterprises managing significant components of the national infrastructure.

    Here’s what they mean. China wants to dominate biotech and cleantech. This area will get high priority and ample funding. If this is your line, China is your (gold)mine.   Airlines, food, pharma, shipping, tourism – these are domestic consumption engines, which will boom as the Chinese middle class expands and spends. To win here, you have to offer products precisely tailored to the Chinese middle class and its rapidly changing tastes. They seek global brands, prestige, quality and fair prices.  Real estate and banking are both shaky. China’s government wants to restructure them, reinvent risk management models, and stress affordable housing. If you have expertise in these areas, you can do well in China.  China has a lot of mature manufacturers who need to upgrade.  If you have productivity tools to help them, you can prosper in China. China’s infrastructure – power, railroads, roads, communications – are state-run, often poorly. China’s government knows this and seeks ways to upgrade the management of its infrastructure, as it spends billions on the physical infrastructure itself.

   China’s 12th Five-Year-Plan is worth reading carefully. It offers massive business opportunities for those who know how to imagine, move..and scale.  And China has scale in spades.

Guangyu Li and Jonathan Woetzel , “What China’s five-year plan means for business”, McKinsey Quarterly,  July 2011.