By 2015, China is projected to spend US$5,000 billion on domestic consumption, as it moves from an export-based to a consumer-based economy, according to Deloitte Shanghai.
That increase in domestic consumption is good news for B.C. high-tech and life sciences companies, Deloitte Shanghai told its Canadian counterparts at a February 28 investment forum in Vancouver.
B.C. companies are already profiting from China’s boom. Westport Innovations’ partnership with Weichai Power is just one example of local companies that are already capitalizing on China’s increasing domestic consumption.
“Many of the mid-sized firms across IT, wireless and clean-tech are also making inroads, signing co-operation agreements in China – this includes AirG, Clevest and a host of others,” said Bill Tam, CEO of the BC Technology Industry Association (BCTIA).
China’s move to a more consumer-based economy is the thrust of its 2011-15 five-year plan, which is designed primarily to expand the country’s middle class. That shift is increasing demand for products and services produced by Canadian high-tech, clean-tech, life sciences and health-care sectors, which are being wooed with a range of incentives.
“There is a big, big change in the economic direction,” Jeff Xu, a tax partner with Deloitte Shanghai, told forum attendees, before heading to San Francisco to deliver the same message to Silicon Valley.
He said the Fortune 500 companies are already in China.
“Now the second wave is mid-sized businesses,” Xu told Business in Vancouver.
Manufacturing and exporting have thus far been the main drivers of China’s economic growth. But it’s now rapidly shifting its focus to raise the standard of living for the country’s lower-income citizens and has implemented new policies and incentives aimed at increasing their spending power, which will mean greater domestic consumption.
The plan includes modernizing China’s rural economy and improving its health-care system. Xu said that translates into business opportunities for Canadian companies involved in health-care services, pharmaceuticals, biotech and medical-device manufacturing. China is even relaxing its foreign investment regulations to allow non-Chinese companies to build and operate private hospitals there.
One attraction for Canadian biotechs and pharmaceutical companies is the lower cost of performing clinical trials in China – something that can cost up to $1 billion in Canada and the U.S. The opportunity to gain access to cheaper clinical trials and a huge market is one of the reasons Arc Medical Devices Inc. CFO Bruce Hay attended the forum. Although he has concerns about intellectual property protection in China, his company, which makes a product that prevents scarring after surgery, is considering a joint venture in China.
China’s economic growth is increasing its demand for energy, and it’s focusing heavily on sustainable and renewable energy. China already dominates the solar photovoltaics manufacturing sector, but it’s keen to attract Canadian clean-tech companies in other areas, like wastewater treatment. China’s government is offering incentives for the high-tech sector, including tax breaks and subsidies for land and employee training. Special economic development regions also have additional incentive programs. The standard income tax rate in China is 25%. High-tech enterprises are eligible for 15% rates, and the country’s municipal and regional governments can offer added tax breaks. High-tech companies involved in research and development in China may also be eligible for a “super deduction.” For every $100 spent on R&D, a qualifying company would get back $150.
Beverley Pao, an audit partner with Deloitte’s Chinese services group, said Canadian companies have been reluctant to invest in China because of uncertainties over investment protection. But after nearly two decades of negotiations, China and Canada recently signed a declaration of intent to conclude an Investment and Promotion and Protection Agreement, which provides reciprocal, legally binding protection for Canadians doing business in China and vice versa.
Pao added that federal and provincial government efforts to improve trade relations have raised Canada’s profile in China considerably in recent years. •
