Five Myths About Business in China

Dean of China's top business school CEIBS busts five myths about the Chinese economy in a new blog series on WSJ.com

We just came across this piece by the dean of China's top-ranked business school CEIBS on WSJ.com. He takes several widely accepted prejudices about Chinese fims, consumers and university graduates and firmly dismisses them. The conclusion: Chinese consumers are as sophisticated, Chinese firms as innovative and Chinese grads as creative as the West fears.

Maybe in his next blog he can advise what the rest of us are meant to do in the meantime!

The first in a new weekly series on The Source which looks at the lessons learned by business leaders, academics and commentators.

For starters, we’ve spoken to Professor John Quelch of the China Europe International Business School (CEIBS), one of the leading business schools in China. He has a unique insight into business in the East and West having been Dean of London Business School.

Here, he describes five myths and common misconceptions about business in China:

1. Chinese consumers don’t consume
To anyone who walks down the Nanjing Road in Shanghai, this statement will seem ridiculous: China will soon become the number one market in the world for luxury brands and more Ferraris (and many other high-end auto brands) were sold in China last year than anywhere else.

Of course, the Chinese population is more than four times that of the U.S., but more important, domestic consumption in China accounts for only one third of GDP, compared to two-thirds of GDP in the U.S. Why is this the case? For the ninety percent of the Chinese population living on less than $5,000 per year, life is full of risk

The most significant risk is getting sick because there is no social safety net in China. Hospitals often require cash up front. Thanks to economic growth, the Chinese are living longer but the nation’s one child policy has meant many older Chinese have to survive without the traditional level of family support and without significant pensions.

Bottom line: the Chinese have to save a much higher percentage of their income for a rainy day than Americans do.

Now, the Chinese government is investing massively in health care provision to provide the safety net that will enable Chinese consumers to increase greatly their domestic consumption. When that happens, China, with one-fifth of the world’s population, will truly become the engine of world economic growth.

2. Chinese consumers aren’t social
In China, competition is intense. In a highly mobile economy, this means that the brands you display signal status and worth. It also means that your “guanxi” or connections can be very important as a tie-breaker when a hundred equally-qualified applicants are after the same job.

Although Facebook can’t operate in China, there is no shortage of on-line social networking on Chinese language sites. In fact, a recent TNS study revealed that 265 million Chinese engage in social media for, on average, 5.6 hours per week, 54% of them daily. The average number of friends for a Chinese social media user was 67, a powerful number when one considers the speed with which new product information or criticism of a brand can be spread over the Internet.

In addition, the Chinese have been at the forefront of group buying. Taobao—a Chinese language website for online shopping—can negotiate a better price for a group of consumers unknown to each other but all interested in buying the same model car at roughly the same time. Groupon and other companies are now pushing this business model in the U.S.