In February 2018, Theresa May completed a visit to China with announcements of education deals largely focused around Wuhan, China’s “Student City”, as well as reported unspecified business deals worth in excess of £9.3 billion, presumably forged by members of the Prime Minister’s accompanying business delegation.
The recent visit by the Prime Minister was the most recent development in a rewarding Sino-UK relationship visualised by then Prime Minister David Cameron in 2015, aided by the enthusiasm of Chancellor of the Exchequer George Osborne. The relationship was coined the “Golden Era” of trade and international relations between the two countries and kicked off in October 2015 with the first state visit of a Chinese President to the UK in 10 years.
The argument for the Golden Era being more than merely rhetoric is largely supported by the increased investment the UK receives from it’s far eastern counterpart. Chinese to UK FDI has increased from £666 million in 2010 to around £6.6 billion in 2016 and £14.9 billion in 2017 respectively, according to China Daily. A year on year growth of 126% between 2016 and 2017 represents a dramatic increase and potentially the indication of an appetite to continue investing in the UK despite Brexit, for now at least.
However, not every indicator is as positive. According to a report by the House of Commons Library titled ‘Statistics on UK Trade with China’, the UK enjoyed a record year of exports to China in 2014, with a high of £18.9 billion bagged. 2015 total exports dropped to £16.4 billion. In 2016 (the first year after the Golden Era was prophesied in late 2015) whilst exports climbed year on year vs. 2015 to £16.8, the pessimist might say that for all the efforts of David and George in 2015, the state visits and the royal photos with the Queen in attendance, only a measly year on year growth in exports of £0.4 billion was obtained. A total still £2.1 billion short of the 2014 total.
It would be a mistake to think that the UK has nothing of value to offer the Chinese market. UK services, particularly those in fields of travel and legal consultancy excel in China and contributed to a 2016 trade surplus of £1.6 billion with China when viewed independently of goods traded (when goods and services are taken together, the UK recorded a deficit of £25.4 billion for trade with China in 2016).
In terms of goods exported to China, the UK’s largest single product group sold in 2016 was road vehicles, valued at £3.7 billion and representing 28% of all goods exported to China in the year. The second and third most popular groups were petroleum and pharmaceutical products. As highlighted within previous articles, British luxury consumer goods have the potential to break into the top three and improve the UK’s exports to China as a whole.
Perhaps it is coincidence that David and George’s announcement of the Golden Era with China came in the year following the UK’s all time record high of export value to China, or perhaps it was this that inspired the announcement of the Golden Era, to attempt to ride the wave generated in and prior to 2014.
Either way, exports to China have shrunk since 2014. Perhaps an organic, bottom-up approach driven by private enterprise is more effective than a top-down approach led by Eton graduates.
According to Fashion Network, in 2017 a massive 55% of surveyed Chinese e-retail spenders purchased British brands. These shoppers reported average monthly purchases of £104 per month on British Fashion, significantly larger than the £89 a month that the average domestic UK shopper spends.
This news is nothing new to the largest of British fashion houses, with Vivian Westwood and Burberry having opened hundreds of stores in mainland China in recent years. Other fashion retailers with the financial clout to do so are following suit: In December 2016 Topshop announced plans to open offline boutiques in the Chinese mainland. To put it simply, China is no longer just the source of cheap production materials and labour for the UK’s leading Fashion Brands, it is their largest potential market by a considerable distance.
Brexit is looming and as European markets appear bleaker, the Chinese fashion market has never looked better. British-Chinese designers including Wen Pan Studio, Masha Ma and Yang Li are following in Uma Wang’s footsteps in accessing both the London and Chinese consumer fashion markets. Importantly, in doing so, they are actually shaping Chinese fashion tastes and subsequently contributing to an industry in China very intimately influenced by British Fashion. And what is the result? Bingo! British Fashion is increasingly appealing to an increasingly affluent Chinese shopper.
It’s obvious that the driver for the growth of British Fashion does not lay solely at the feet of the new breed of British-Chinese Fashion designers. Chinese retailers are also playing their part to facilitate the access of domestic UK brands into China, Topshop are working with Shangpin.com, and Farfetch with JD.com, giving albeit costly access to the international growth market.
Even the British government is getting involved. The Fashion is GREAT initiative, facilitation of cooperation between London and Shanghai Fashion weeks and numerous trade delegations to Beijing have contributed to the UK being head and shoulders above any other countries worldwide in terms of the recognition of and engagement with the Chinese consumer market.
In a word, yes!
The Chinese eRetail market is the largest in the world. Depending on where you read, 2016 Chinese eCommerce spending was anything between $710-$750 billion. This figure is just under half of all eRetail spending made worldwide and it dwarfs the American equivalent spending of $450 billion during the same period.
The scary thing is, this market is not even close to being fully developed.
The above mentioned spending of over $710 billion is estimated to have been made by around 460 million Chinese online shoppers. We know that the population of China is over 1.3 billion, so the potential for further market penetration is fantastic.
Indeed, the amount of Chinese regular online shoppers is expected to increase by a further 200 million by 2020. This will be facilitated by a further improvement in domestic infrastructure, closer international trade ties (think post Brexit UK-China trade deals and the 1 million jobs Trump expects Chinese eCommerce spending to create in the USA).
The spread of affordable and improving mobile technology will also aid the increase in Chinese online spending, as will as the rising living conditions and disposable income of residents of traditional Tier 2 cities such as Wuhan, Chengdu and Hangzhou.
So what does this mean? Well, Goldman Sachs think this means that Chinese annual eCommerce spending will reach a massive $1.7 trillion by 2020.
Kaola.com is one of the leading Chinese eCommerce giants outside of the top two (Alibaba Group and JD.com) and it has pledged to spend $3 billion on European brands in the next three years. It is the eCommerce arm of NetEase, A NASDAQ listed Chinese internet services company worth $35 billion.
Let's start by confirming: Kaola is not actually a typo, it is the Chinese (pinyin) spelling for Australia's favourite marsupial. Whilst the cuddly tree hugger is characterised by being slow and lethargic, Kaola.com most certainly are not.
NetEase's gaming and technology credentials (Blizzard fans may recognise them as previous game development partners) have allowed Kaola.com to be one of the most innovative in terms aesthetics and website functionality. In terms of strategy, Kaola.com is aggressively winning market share by being the most Western centric of Chinese eCommerce leaders.
Australian (no prizes there), Korean, Japanese and American products currently occupy the bulk of Kaola.com's store, which, like all great Chinese eRetailers, offer everything from baby food, to handbags and Fairy Liquid.
Now Kaola.com have decided to plug the gap in its offerings of European brands and will go on a $3 billion spending spree to fortify the range of UK and European products it sells.
So now the only question is, now you know that NetEase didn't make the blunder of building one of the fastest growing eRetail giants on a typo, how will you compete for attention when Kaola swing by Europe with their (huge) shopping trolley?