Over the past sixty years, the People’s Republic of China has grown from one of the world’s poorest countries to its second-largest economy and a global superpower.
Home to 1.4 billion people, China’s long history and cultural diversity contribute towards its stature as a powerhouse of economic growth. German startups and SMEs looking for international expansion opportunities should consider China for their eastward expansion base. Here’s why.
1. No Longer Just “the World’s Factory”
China is quickly becoming a consumption-driven economy. While often dubbed “the world’s factory” because of its manufacturing capabilities, post-pandemic China is pivoting away from a sole focus on production.
In 2022, more than half a billion people in China belong to middle-class households with a larger spending power. In addition, upwards of 75% of China’s urban consumers are upper-middle class. This growing demographic is looking for products and services that reflect their newfound status and lifestyle.
German startups can take advantage of this consumer-oriented shift in China by providing high-quality goods and services that meet these growing lifestyle demands.
2. A Central Location in East Asia
Geographically, China is both the largest and most central country in East Asia and therefore a natural hub for international expansion into other major nations in the region such as Japan, South Korea, and the rest of Southeast Asia. As such, China’s maritime ports are key international hubs for connecting economies across the globe. Some of China’s largest and busiest ports include:
- Shanghai
- Shenzhen
- Ningbo
- Guangzhou
- Qingdao
- Tianjin
- Dalian
- Xiamen
Because of China’s economic clout, having a presence in the country can also increase the standing of your startup or SME within Asia. If you’re looking to expand onward into India, Japan, or Singapore, an existing office in China will speak volumes to potential business partners about your commitment to the region.
3. A Number of Dynamic Startup Hubs
Rather than being a single, homogenous market, China is a collection of individual sub-markets with distinct demographic, economic, regulatory, and cultural characteristics. Each of the country’s startup hubs has something different to offer German entrepreneurs in terms of industry networks and global talent. Some of China’s major innovation hubs include:
- Shenzhen: This city in China’s Greater Bay Area (GBA) specializes in high-tech design, deep tech, and manufacturing.
- Beijing: The capital of the People’s Republic of China is also a dynamic innovation hub focused on artificial intelligence (AI), big data, ecommerce, and FinTech.
- Shanghai: This city is home to innovative startups and enterprises with a specialization in MedTech, artificial intelligence, digital entertainment, and electric vehicles (EVs).
- Hangzhou: Located near Shanghai along the Yangtze River Delta, this startup hub is home to innovators in big data, artificial intelligence, smart manufacturing, and MedTech.
China is home to 172 startup unicorns and counting, with many of them focused on high-tech, artificial intelligence, and automation. But startups with innovative solutions in HealthTech, CleanTech, and AgriTech are also in growing demand.
4. Government Support & Funding Opportunities
The Chinese government provides a number of incentives and funding opportunities to startups – both foreign and domestic – that help China face the challenges of the future.
The People’s Republic of China is one of the largest renewable energy consumers in the world. The government has already invested US$2 trillion in clean technologies, and it’s predicted to invest US$16 trillion more in climate tech to achieve carbon neutrality by 2060. Germany’s expertise in climate tech means startup founders looking to expand internationally will find a welcome market in China.
The Greater Bay Area (GBA) project is a Chinese government initiative to link all 11 cities in the Pearl River Delta. The inter-city network also exists to encourage entrepreneurship and innovation with world-class technology parks in Guangzhou, Shenzhen, Hong Kong, and Zhuhai. These hubs provide entrepreneurs with incubation, acceleration, and funding programs to help startups scale within the region.
The Yangtze River Delta – which includes Shanghai, Hangzhou, and others – is also home to several government-funded startup initiatives including two innovation parks for high-tech startups, as well as R&D facilities, convention halls, an integrated transport network, and other major supporting infrastructure.
As part of its Made in China 2025 initiative, China also plans to invest US$4.7 trillion in revamping its manufacturing sector. As a result, smart manufacturing solutions – including those from Germany – are in high demand.
Finally, the Healthy China 2030 national strategy aims to incorporate AI, cloud computing, data analytics, and IoMT (Internet of Medical Things) into the Chinese healthcare sector, welcoming MedTech solutions from home and abroad.
Conclusion
The strong and growing demand for high-tech solutions – across climate, healthcare, manufacturing, and more – make China a desirable destination for German innovators. Founders should seize these great opportunities mentioned above in order to enter the world’s second-largest economy – and to grow along with it.
Startup founders and entrepreneurs have many factors to weigh when it comes to their internationalization journey, but for many German startups and SMEs, the calculus is clear: China is the perfect expansion base into the rest of Asia.
What are you waiting for? Register for the China Market Discovery Program from German Accelerator and discover how your startup can tap into and maneuver in this complex market. Application Deadline: October 10, 2022*