HKTDC Research | 5 Jan 2017
Exploring the Belt and Road Markets: An Opportunity for Guangdong’s Jiangmen Enterprises
HKTDC Research recently held a seminar in Guangdong’s Jiangmen city in order to canvas the views of local businesses about the host of opportunities arising from the current Belt and Road Initiative. Many enterprises in Jiangmen are looking to sell more consumer goods and industrial products to markets along the Belt and Road. In particular, they are interested in certain developing countries where demand for value-for-money products is strong. These countries offer good opportunities for Jiangmen motorcycle and furniture manufacturers with a competitive edge, enabling them to make an entry into this market and develop their brands there.
Belt and Road markets in which Jiangmen enterprises are most interested include countries in Southeast Asia, South Asia and West Asia like Iran. Industry players in the city also wish to use Hong Kong as a source of information on the demands, sales channels, and trade and commercial practices of markets along the Belt and Road. Hong Kong also offers them a wellspring of support in financial affairs and other business matters.
Some enterprises in Jiangmen plan to import quality raw materials from the Belt and Road countries for production, but only a small number of them suggest they would invest in setting up manufacturing facilities there. Actually, when enterprises set out to invest in establishing factories in overseas countries, they are careful to consider the entire supply chain and the pace of investment of their downstream clients in the target region. As such, they would not hastily relocate their production activities abroad merely for the sake of labour supply or lower production costs.
Jiangmen Enterprises “Going Out” to Expand Overseas Business
Today China is not only the world's second largest source of outbound direct investment (ODI). Under its Belt and Road development strategy, it has also made concerted efforts to strengthen investment in and economic co-operation with countries along these routes. The Pearl River Delta (PRD) region is one of China’s key production bases as well as a leading gateway to the outside world. Thanks to the inflow of foreign investment, Jiangmen city, situated in the western part of the PRD, has been growing in leaps and bounds economically in recent years. At present, apart from engaging in processing activities, many of the enterprises in Jiangmen are also hoping to expand their business abroad and further develop their sales channels in overseas markets.
It's worth noting that Jiangmen has developed into one of the leading production bases of motorcycles in China. The city not only has a comprehensive motorcycle industry chain. It also produces motorcycle parts, components and accessories supplying to factories locally and in other provinces, as well as exporting them to foreign markets. According to statistics, the annual output of motorcycles in Jiangmen exceeds 3 million units, accounting for over 40% of Guangdong's provincial total and about 14% of the national total.
To further promote business, in recent years Jiangmen businesses have been actively 'going out' to seek various opportunities, including those for selling to Belt and Road markets, as well as exploring the feasibility of sourcing and investing in them. Current statistics show that 64 enterprises in Jiangmen have filed for 'going out' to make offshore investments, with a cumulative total investment amounting to US$710 million. Of this, 87% has first flowed into Hong Kong, before later reaching its final investment destinations overseas.
In mid-2016, HKTDC Research conducted a survey in selected locations in Guangdong and Guangxi. The aim of this was to investigate the intentions of those mainland enterprises who are 'going out' to explore business opportunities created by Belt and Road Iinitiative, as well as their demand for the necessary professional services. The findings summarised in this article also include views expressed by Jiangmen businesses, both manufacturers and traders, which attended the above-mentioned seminar in the third quarter of 2016. Key points of the findings are as follows:
Deepening penetration into Belt and Road markets
In particular to Jiangmen's motorcycle industry, local manufacturers of parts and components supply to domestic and Sino-foreign joint-venture motorcycle assembly plants in the mainland. Additionally, though, some of them sell parts and components to foreign markets (including Pakistan), through the global sourcing system of their Japanese automotive clients.
In a move to further tap into overseas markets, parts and components enterprises are actively negotiating with their motorcycle clients in the hope of providing more support to these clients' production activities in other countries. A number of enterprises have plans to develop direct contact with other motorcycle assembly plants and components distributors in India and Indonesia. By so doing, they wish to conduct more direct selling to clients in overseas markets. This is in a bid to develop their brands, as well as to sell their own brand components in Belt and Road markets.
Some developing countries along the Belt and Road have a marked demand for value-for-money motorcycles with lower fuel consumption and power output. Hence motorcycle assembly plants in Jiangmen, currently producing on an OEM basis for Japanese brands for sale in the mainland, have now turned their attention to Belt and Road markets like India, Pakistan and West Asia such as Iran.
Other Jiangmen-based producers of consumer goods indicate that they wish to export to Belt and Road markets in Southeast Asia. They are currently faced with challenges such as the lacklustre market on the mainland and currency depreciations in certain developing countries (such as the Russian rouble and currencies in some African countries). To combat this, many enterprises are eager to develop markets along the Belt and Road in order to expand their brand business and diversify market risks.
Obtaining market intelligence
In the past, Jiangmen enterprises mainly focused their business on the mainland market and carried out OEM processing activities for clients overseas. As such, they have little knowledge of what's required in exporting directly to overseas markets. Nor do they have access to effective sales channels in foreign countries. The number of countries along the Belt and Road is large, with each of them having different market environments, cultures, languages and sales conditions. Therefore it's particularly difficult for small and medium-sized enterprises to stay well informed when trying to develop such markets.
Despite this hurdle, most enterprises in Jiangmen hope to seek trading partners via Hong Kong as well as to take advantage of Hong Kong's international market resources to acquire detailed market information on Belt and Road countries. This would include details on market demand, import and sales channels, as well as trade and commercial practices of individual countries, so as to develop these markets in depth. Some enterprises also revealed that they wish to obtain trade financing through Hong Kong to support the expansion of their business overseas.
Following in the footsteps of clients
There are also those enterprises which follow in the footsteps of their clients in exploring the Belt and Road markets. In particular, Jiangmen enterprises involved in motorcycle production are actively looking to establish logistics facilities abroad, in order to meet the stringent requirements of their clients with motorcycle assembly plants based overseas. These clients mostly operate under the just-in-time model. They have stringent requirements for product quality and reliability, as well as the logistics and distribution of parts and components supply.
At present, high-tech production activities overseas are increasing. In addition, factories are being established along the Belt and Road by downstream clients to produce a wide range of products such as auto parts and components, electronic products and different kinds of higher-value furniture, In light of this, some upstream production materials suppliers who are currently supplying primarily to mainland clients, for instance those engaged in new materials, nano materials and other new and high-tech materials, are also expected to follow in the footsteps of their clients by setting up sales channels along the Belt and Road routes. With this they aim to support the offshore production activities of their clients while exploring the industrial market along the Belt and Road.
Yet to consider setting up factories
Despite the previous development, the majority of enterprises in Jiangmen currently have no concrete plans for relocating production activities away from the mainland. As a matter of fact, the development strategy of most enterprises is to conduct trade with countries and territories along the Belt and Road first before considering investment projects such as backing the establishment of industry parks. Even for larger enterprises, such as certain former state-owned enterprises, their current objective is to pursue transformation and upgrading in a move to enhance their technology and value-added content of their business in order to meet an array of challenges.
In general, enterprises in Jiangmen view the central government’s Belt and Road initiative as a clear opportunity for business development. As such, apart from developing export business, some enterprises also plan to partner with their industry peers in Belt and Road countries by way of business matching. This would enable them to look into industrial upgrading, such as developing higher technology business like bio-technology, LED and optoelectronics, as well as implementing more high-tech co-operation projects with their business partners.
There are those Jiangmen enterprises who are looking to make direct investment in or else to engage in mergers and acquisitions with Belt and Road markets at a later stage. Most of them said that they would take further advantage of Hong Kong in order to raise funds for their offshore projects, manage their overseas staff and handle international tax matters.
Importing from Belt and Road
As well as achieving sales, certain Jiangmen enterprises also wish to import quality raw materials from the Belt and Road region as inputs for production on the mainland. For instance, enterprises manufacturing chemical fibres and other high-tech products in Jiangmen are not only actively raising the level of R&D and production. They are also seeking more quality raw materials, including various kinds of chemical raw materials, to support further business expansion. These enterprises are most interested in sourcing these raw materials from petroleum products-producing countries in the Middle East and Southeast Asia. Some Jiangmen enterprises indicated that they are actively searching for relevant information from Hong Kong and other channels in the hope of importing the right raw materials from the Belt and Road markets to support their production activities locally in the city.
HKTDC Research wishes to express its appreciation to the Department of Commerce of Guangdong Province and the Bureau of Commerce of Jiangmen City for their assistance in conducting research studies and company visits.
 2015 figures. Source: Statistical Bulletin of China’s Outward Foreign Direct Investment 2015
 Source: Jiangmen Association of Enterprises with Foreign Investment
 Source: Bureau of Commerce of Jiangmen City
 For details on the surveys, please see Chinese Enterprises Capturing Belt and Road Opportunities via Hong Kong: Findings of Surveys in South China
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