InterChina China Business Forecast 2021 "Decoupling and Alignment" November 25, 2020
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InterChina
China Business Forecast 2021
“Decoupling and Alignment”
November 25, 2020
China partner of
Confidential 1
China 2021: The Start of a New Business Era in China
2020 was a milestone year for China as it emerged from the COVID-19 stronger and more confident. The momentous
shifts which occurred in 2020 will impact China and its global status and relations for the years to come. The new dual
circulation policy and the up-coming 5-year plan show the commitment of China to develop both its domestic market
and its domestic industry. While China remains open to FDI, the pressure for foreign companies to perform and
compete locally is increasing rapidly.
We observe 3 important trends with long term impact:
1. The gradual fusion of government policy into the business environment. Politics has of course always been
important in China, but has taken on an international dimension too now. Companies will have to navigate
carefully, and might have to make important decisions on the role of China in the global value chain. Alignment
and communication between China and HQ is bound to become more challenging.
2. A more drastic and more urgent approach to ´being local´ in China. Companies need to define what “being local”
Jan Borgonjon means for them, and how to achieve that whilst maintaining alignment with global priorities. Partnerships and
acquisitions are gaining importance, in China and possibly at global level
President
3. The emergence of explosively growing, disruptive Chinese companies in a wide range of sectors. These are not
only a challenge but offer also great opportunities as customers and partners. However, working in these sectors
and with these companies requires often a totally different mindset and organization.
As our CEO survey shows, most (65%) international companies consider that China is or will become their first or
second global market within less than 5 years. At the same time, the traditional advantages of these companies such as
brand, technology and management, are being rapidly eroded by Chinese competitors, both traditional and disruptive
ones. Hence, many international players are increasingly committed to further localization, including local production,
management and decision making, local product development, and local partners. Other companies will have a tough
call to make, whether to invest and jump ahead or to divest while there is still value to potential buyers.
Yes, 2021 will be a growth year in China, but as the new rules of the business game become clearer, it will also be a
year of stark and difficult choices.
2
Confidential 2
InterChina Partners
A well-respected China-focused cross-border advisory firm
Who We Are
Interview-driven
Sector insight
Big Data/ Digital
China Leader
Global Reach Vectors of Enrooted in
growth China’s new
26 years in the market
Clearwater International China market ecosystems
50 Advisors 23 global offices
200 advisors Strategy
Independent Partnership ~1,500 transactions with total Practice
value of EUR 70+ bn
Sector Specialist Corporate
Our Clients Finance
Industrials
Multinationals F.1000. Healthcare
Private Equity Chemicals Buy- and sell-mandates
Chinese Listed & POE C&R Alliances/partnerships
Business Services Growth Transactions Debt advisory
(USD 50-200 m)
+210 transactions closed
7-10 transactions/year
Confidential 3
Looking back on our Clients’ strategic needs during 2020…
Sector hot-spots Our clients’ needs and objectives
Production
automation
How can we To remain competitive
Agricultural diversify into adjacent in China, what does it really
value chain technology offerings? mean to “be local”?
modernization
Imported
consumer goods
Green tech,
How can we find local
environm. How to create a concerted
partners in China to
services strategy of both online
commercialize key
and offline channels?
technology from overseas?
Medtech
Confidential 4
Looking back on what drove M&A in 2020
InterChina’s 2020 Transactions Transaction drivers
Oct 2020
Consolidation is now
Foreign co’s seek access
really happening in
the mid-tech market…
most sectors – driven by
and do so by acquiring
Sept 2020 listed co’s, yet MNCs
suitable Chinese players
don’t want to miss out
Sept 2020
Mar 2020
Restructuring Acquiring license and
China operations manufacturing
Jan 2020 (exit non-competitive or capabilities in China
non-performing sectors) Localization
Jan 2020
Confidential 5
This report is based on a survey of 229 China based
executives, conducted during October 2020
Business support services Environmental technologies and services
2%
5%
Chemicals and materials
Production equipment
7%
25%
Automotive
7%
Sector mix of
respondents
N = 229 foreign corporates
Pharma and medical devices 13% 88% located within
Mainland China 14%
Others
13%
13%
Consumer goods (F&B, durables, etc.)
Construction, building
materials and automation
N = 229 respondents, surveyed Oct 2020, InterChina analysis. Confidential 6
Looking back on 2020: What a year…
The West China
The new normal Back to business
Confidential 7
Business in China will never be the same…
3 key themes for China 2021… and beyond
Functions in China
Cloud
NPD
Decoupling R&D
Financing
Block War
Sourcing
Production
Sales
Politics becomes business Full-scale or nothing New, disruptive sectors
“the battle for relevance”
• Growing impact of policies • Relevance of MNC China • Fast emerging local players
on business environment businesses vs local peers
• New business models
• How corporate players are • “Being local” whilst being
adapting to this globally aligned
Confidential 8
1
Politics becomes business
… and vice versa …
Confidential 9
‘Business as usual’ is gone forever…
Scenarios for the future
Scenario / Probability Characteristics Role of MNCs
Constructive • Semi-friendly, gradual, pragmatic decoupling • Continued relevance / techn. and
decoupling • Coop. and unilateral development simultaneously know-how needed
• Selected increase of trade barriers, slow regionalization • Strong foreign corp. presence
60%
• Duplication of supply chains political leverage / reciprocity for
• Made in China 2025, China Standard 2035 outbound Chinese co’s
• Politics focused on domestic affairs, “face” • Foreign co’s in China increase local
(most likely) co’s global competitiveness
Hardcore • Constant crises and antagonistic attitudes • Still a key role
decoupling • Trade barriers increase fast, speed up of regionalization • But increased uncertainty…
30% •
•
Local IP and local CAPEX required
Limitations on people / HR exchange
• … as MNCs might become political
targets
(less likely) • Political actions against large corporations
Conflict • As above, plus military crises and armed conflicts • Meltdown
10% • Trade blockade, radical disruptions of standards • Targeting of companies
(unlikely yet • High restrictions on people / HR exchange • Full-scale boycotts
not impossible) • Political actions across the board, financial sanctions
Source: InterChina analysis. Confidential 10China has just upped the stakes with its RCEP deal
that may account for over 40% of global GDP by 2030
Trade blocs and economies, GDP, 2019, USD tn
US 21.4
Source: IMF, HSBC Confidential 11Will China’s dual circulation strategy provide an escape
from the Thucydides Trap*?
Trade
No No Cold Tech
war war war War
Rising Power Ruling Power
Cent. 15th 16th 16/17th 17th 17th 17/18th 18/19th 19th 19th 19/20th 20th 20th 20th 20th 20th 21st
*”Apparent tendency towards armed confrontation between established and emerging world power¨
Source: Belfer Center Confidential 12Ready for the boom:
China is expected to emerge strongly next year
2020 China GDP growth estimate, % yoy 2021 China GDP growth forecast, % yoy
9.9
8.8 8.7 Ø 7.8%
8.2 8.0 8.0
7.9 7.7
7.6 7.6 7.5 7.4
7.3 7.1
7.0
6.3
Ø 2.0%
3.0
2.7 2.5
2.4 2.4 2.3 2.3 2.2
2.1 1.9
1.8 1.8 1.7 1.6 1.6 1.6 1.5
1.0
OECD
OECD
IMF
Renmin Univ.
Asian Dev. Bank
IMF
Deutsche Bank
World Bank
Asian Dev. Bank
UBS
World Bank
Deutsche Bank
UBS
IHS Markit
Fitch Ratings
Moody’s
EIU
IHS Markit
FocusEconomics
EIU
Moody’s
IMA
JP Morgan
Nomura
FocusEconomics
Nomura
JP Morgan
IMA
HSBC
HSBC
PwC
PwC
Oxford
Economics
Oxford
Economics
World: -4.4% (IMF) World: 5.4% (IMF)
Note: The publication dates of forecasts from different sources vary. Confidential 13China is now the world’s largest FDI recipient
Global Top 10 FDI recipients, in USD bn
277 2017 2018 2019 2020 1-6
254
246
135
131 138
111 104 114
92
84 80 84
68 68 67 60 72 68 74
60 60
51 45 51
33 38 34 36 36 40 42
24 18 25 21
11 14
-18
By Sept: 103
-86
USA China Hong Kong Brazil Singapore Netherlands France Australia Germany India
Sources: Source: UNCTAD, MOFCOM, Statistics Canada, Reserve Bank of India, Banque de France Confidential 14Dual circulation: China doesn’t shut its doors but wants to
become more self-reliant
External circulation Domestic circulation
• Open domestic markets to • Boost domestic demand
foreign investors in most
sectors • Urbanization, infrastr. investment
• Reduce coverage of • Support for SMEs
negative list significantly
• Improve social safety net
• Lower import tariffs and
non-tariff barriers • Deepen structural reforms / supply
side reforms
• Connecting local with int’l
stock markets • Improve productivity,
sustainability
• Decrease dependence on foreign countries in strategic sectors
• Local co’s as suppliers preferred, or local operations of MNC´s
• MNCs role in increasing global competitiveness of local co’s
Source: InterChina analysis. Confidential 15To make this work, China has to boost domestic demand in
2021… is this achievable?
China
US
China saves less and spends more… … and with more debt…
Personal saving rates China vs US, as a % of disposable income Personal debt rates China vs US, as a % of disposable income
42% 41% 41% 133% 131%
40% 40% 38% 38% 37% 125%
36% 36% 35% 118%
111% 111% 107%
104% 103% 102% 99%
87%
80%
72%
63%
50% 55% 59%
46% 47%
39%
9% 31%
7% 7% 6% 7% 8% 7% 7% 8%
5% 6%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
… but continues to have a lot to give
China’s urban households’ average net
… and this represents a household
worth is USD 200,000 – that’s twice as
universe comprising 831 m people.
wealthy as US households
Sources: IMA, NBS, FRED, BEA, BIS, US Board of Governors of the Federal Reserve System, OECD, WIND. Confidential 16Surveyed MNCs are confident that China will boost local
consumption in 2021
Survey
Will China be able to achieve a strong local consumption growth results
in 2021 to enable its dual circulation strategy?
Construction Energy
Customer Various Retail Production Medical Auto- Real estate O&G
sector (All) consumers sector institutions motive Public transport Utilities
50%
"Yes, I am 59% 58%
72% 77% 74%
confident" 83% 81%
33%
32%
"I’m uncertain" 42%
23% 19% 21%
14%
"No, I doubt it" 17% 17%
5% 5% 5% 5% 9%
0%
Sellers of Sellers of Sellers of Sellers of
Sellers of Sellers of
Sellers of FMCG, production drugs, auto-
equ. , equ.,
Respondents All corporate food, equ., and medtech motive
parts, parts,
services durable industrial devices parts (T1,
materials services
goods parts and equ. T2)
N = 229 respondents, surveyed Oct 2020, InterChina analysis. Confidential 17How will the new middle-class spend their money
- A paradigm shift in consumption in 2021?
Feeling safe, Purchase more on credit:
confidence Less savings, more spending
Stay in- Buy local only: ‘China first’
country
Looking for a cheaper bargain:
Price deterioration
Better local
products
In some cases, millennial frugality:
Cut daily spend to amass wealth
The avg. post-COVID Chinese consumer
Source: InterChina analysis. Confidential 18The money previously spent abroad can now be directed
towards in-country purchases
Chinese traveling outbound, in million people
169.2
162.0
142.7
135.1
127.9
116.6
98.2
83.2
70.3
57.4
12.2
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
(1-6)
Sources: NBS, China Tourism Academy Confidential 19China still imports lots of goods from Asia…
An opportunity for European importers to move up in 2021?
China’s largest importers (top 10 by import value), 2019
Total imports Breakout example sectors
All products Machinery Chemical Optical, Transport. Plastic and Vegetable Live animals,
and materials and electrical products measuring, equipment rubber produce animal
that China equ. precision, products produce
imports medical
instruments
South Korea Taiwan Japan Japan Germany South Korea Brazil New Zealand
Taiwan South Korea South Korea Taiwan Japan Japan US Australia
Japan Japan US South Korea US Taiwan Thailand Brazil
US Malaysia Germany US France Thailand Canada Argentina
Australia US Taiwan Germany UK US Argentina Russia
Germany Vietnam France Switzerland South Korea Saudi Arabia Chile US
Brazil Germany Saudi Arabia Singapore Sweden Singapore Australia Canada
Malaysia Thailand Singapore Thailand Austria Germany Vietnam Germany
Vietnam Philippines India Malaysia Thailand Malaysia Ukraine Spain
Russia Singapore Italy UK Italy Iran Philippines India
Importer origin Asia North America Europe Middle East and Russia Australia / NZ LATAM
Source: China Customs. Confidential 20In the foreseeable future, China won’t be a net importer
China’s total imports, USD bn China’s total exports, USD bn
+3%
+5%
0% -1%
2,687
+10% 2,601
+6%
2,487 2,499 2,487
-3% +9%
-2% 2,334
+16% 2,263
2,208
2,136
2,077
2,033
1,844
2017A 2018A 2019A 2020E 2021F 2022F 2017A 2018A 2019A 2020E 2021F 2022F
Sources: China Customs, Oxford Economics (Sept 2020) Confidential 21… yet there are many products from Europe and US that
experience a real import boom this year
China’s import value H1 2020 over H1 2019 of selected categories Top 3 importers H1 2020
Grain +14,029% USA Myanmar France
Piling machinery +1,635% Germany Netherlands Taipei, China
Cold-rolling mills for metal +492% Germany Taipei, China Italy
Paper packaging machine +421% Germany Japan UK
Pork +293% USA Spain Germany
Peanuts +222% Sudan Senegal USA
Pulps from waste paper +212% Laos USA Taipei, China
Disinfectants +133% UK USA Germany
Hydraulic hoists +122% Germany USA Netherlands
Tunnelling machinery +112% Austria Germany USA
DC motors and generators +112% USA Canada Germany
Gas liquefying machinery +110% France USA Norway
Marine engine +108% Japan USA Thailand
Photographic chemicals +101% Japan South Korea Taipei, China
Nuts +101% Russia Mexico USA
Electrical insulators +92% Germany Sweden Japan
Wheat +91% France Canada Australia
Poultry +90% Brazil USA Thailand
Insulin +76% Denmark Germany USA
Harvesting machinery +62% USA Germany Japan
Edible offal +60% USA Spain Germany
Thermometers +51% Germany Japan USA
Roller bearings +46% Germany Japan Romania
Semiconductor manufacturing machine +45% Japan Netherlands USA
Ozone/oxygen/aerosol therapy +44% Germany USA Taipei, China
Glass or metal polishes +42% Japan USA Taipei, China
Nonwovens (weight 25-70g/m2) +41% Japan USA Luxembourg
Electric cabinets +41% Germany Switzerland USA
Agricultural machinery +33% Netherlands USA Italy
Source: China Customs, InterChina Analysis. Confidential 22What to expect from the 14th FYP?
Dual Circulation Strategy A massive suite of reforms Going
green
Alleviate
poverty
Increased local
consumption & services Education Urbanization
& R&D / hukou
spend reform
Digitalization Governance
Tech upgrades
Energy
Better
Land transition
5G, AI, IOT Mixed ownership social
reform Plastic ban
¥1tn More competition safety net Circular
infrastructure … but also: economy
Self-sufficiency National security
Source: InterChina analysis. Confidential 23The 14th FYP brings a digital quantum leap: Smart value chains
and production clusters
Concept “Resources-
Saving” What we’re likely to see in
Goals the coming year(s)
“Smart” • Less restrictions on foreign
• Accelerate
investment, but also clearly
Infrastructures (urban, rural)
“strategic
earmarked ‘strategic emerging
emerging
industries’ that will provide no-go
industries”
boundaries.
Bio- High-end • Reliance on SOEs as “main pillars
IT
• … to become a tech equ. of industry”
key motor for
Value chains
future
• 10 industrial bases w. global
economic
influence
growth
Accelerate • 100 industry clusters w. int’l
New New competitiveness
• … via clusters 8 key
materials energy • 1,000 industry ecosystems
and industries
ecosystems…
• Many new innovation / R&D
centers
• … integrated
• Many new demo centers (techn..,
(online) with Intell. Env./ Digital biz models)
public services vehicles Green tech creative • Collaboration w. academia &
universities
Credit risk Double random,
Special Optimized Online one open
Financed compensation
investment mechanism for
More bonds issuance and application governance and
by listing system and approvals internet+
funds smaller co’s supervision
NDRC High Technology (2020) Document No. 1409: Guiding Opinions on Expanding Investment
Confidential 24
in Strategic Emerging Industries and Cultivating Strengthened New Growth Points and Growth PolesCompanies are confident that China will double down on its self-
sustainability goal as set 5 years ago in its Made-in-China 2025 goal
Survey
Will China stay on course with its Made-in-China 2025 program? results
Companies in high-tech sectors are bit more skeptical….
Breakdown of respondents (100% = respondents that said “Yes, but…”)
Pharma,
28%
medtech makers
“Yes - now
66%
even more” Production equip. makers 25%
Construction, building
11%
materials, automation
Consumer goods makers 11%
Others 11%
“Yes, but with Business support
6%
adjustments services
down in some 28%
Chemicals and
areas” 6%
materials makers
Automotive T1, T2 3%
Unsure 5%
N = 229 respondents, surveyed Oct 2020, InterChina analysis. Confidential 25Old and new candidates for investment bubbles
Investing for the wrong reasons (or, too good to be true)
In the past and present Going forward
Steel PV / solar Wind power 5G data centers PPE Biosimilars
NEV OEMs Investment gluts Robotic OEMs Semicon Opportunities do Renewables
in various exist in those
sectors led to a sectors, careful
proliferation of selection of right
makers and customer or
capacity partner needed
MLM schemes Coffee chains Commercial H2 / fuel cells Gaming Export business
properties
Source: InterChina analysis. Confidential 26What is expected to happen in 2021?
Huawei adds HarmonyOS 2.0 Siemens Energy delivers first Tesla starts to export made-in- 5G penetration 83%. 60% of
on >200 m phones, replacing megawatt green hydrogen Shanghai 3s models to Europe 5G smart phone shipments in
Google Android platform production solution in Beijing. China cheaper than USD 400.
Beyond Meat’s Zhejiang plant DeepRoute and Cao Cao Universal Theme Park opens Comac C919 enters service.
starts producing plant-based Mobility launch robotaxis in doors in Beijing C919 has 815 unit orders from
beef, pork, and chicken. Hangzhou. 28 (mostly domestic) airlines.
Expanded Central Bank's digital China continues to build out IOT ABB opens its most advanced BASF’s USD 10 bn smart
currency pilot programs, satellite network (“Xingyun”) robotics plant (USD 150 m) in Verbund first plant in
starting to replace bank cards. from 2 to 80 satellites by 2023. Shanghai Guangdong nears completion.
Q1 2021 Q2 2021 Q3 2021 Q4 2021
Source: Public literature, InterChina analysis. Confidential 27China CEO Agenda 2021- Politics becomes business
Will my current value chain (not just supply chain) remain
viable? Do I need a two separate eco-systems?
1 How does (SE) Asia fit in?
Should I decouple?
How can I address short-term opportunities whilst
balancing a long-term positioning (e.g. import vs local set
2 up, premium vs
mass market)
Can I survive being alone,
or do we need a Chinese partner…
3 for the Chinese market,
for the global market?
Are we risking to underinvest in China? How can I convince
HQ to invest in times of global investment freeze?
4 Are we ready to commit
enough resources?
Communication with HQ: How to make China heard &
understood; how can we arrive at a fair assessment what
5 happens in China
and overseas?
Confidential 28… and how InterChina can help
Will my current value chain (not just supply chain) remain Establish customer requirements via
viable? Do I need a two separate eco-systems? market research / interviews
1 How does (SE) Asia fit in? Scenario build-out, looking at the
Should I decouple? InterChina’s offering sector but also beyond
How can I address short-term opportunities whilst Mapping out / segmenting the current
balancing a long-term positioning (e.g. import vs local set and future market
2 up, premium vs Opportunity / risk assessment
mass market) InterChina’s offering Understand how local co’s are winning
Can I survive being alone, Predicting the evolution of the
or do we need a Chinese partner… category / value chain / sector
3 for the Chinese market, Target search and evaluation.
for the global market? InterChina’s offering Negotiation and deal closing
Are we risking to underinvest in China? How can I convince
Making (an impartial) business case
HQ to invest in times of global investment freeze?
4 Are we ready to commit
Understand best practices of peers
InterChina’s offering A practical and sold 3y forecast
enough resources?
Communication with HQ: How to make China heard & “Mitigation” btw. HQ and China
understood; how can we arrive at a fair assessment what subsidiary; putting both parties on
5 happens in China the same page with a report on key
and overseas? InterChina’s offering issues both parties agree on
Confidential 292
Full-scale or nothing
Confidential 30China is and will be the top priority for most MNCs by 2030…
Survey
How long will it take until China is your company’s global no. 1 or no. 2 market? results
No. of respondents, as % of total respondents surveyed
41% already 64% by 2025 81% by 2030
19%
17%
13%
10%
41%
China is already now Within 1 - 3 years Within 3 - 5 years Within 6 - 10 years This may
never happen
N = 229 respondents, surveyed Oct 2020, InterChina analysis. Confidential 31… this will become reality as early as 2025 for machinery makers,
C&R brands, chemicals, and automotive parts makers
Survey
How long will it take until China is your company’s global no. 1 or no. 2 market? results
9% 12%
This may
19% 3% 19%
never happen 24% 22%
29%
33% 33%
29% 13%
6 – 10 years 17% 28%
22%
29%
19%
3 – 5 years 13% 29%
22%
13% 12%
11%
1 – 3 years 10%
6%
19%
22% 22% 67%
China is already 47% 47%
a top 2 market 41% 43% 41%
for our global sales 31%
22% 22%
Total Production Pharma and Business Construction, Consumer Chemicals Automotive Environ. techn.
respondents equipment medical support building goods and materials and services
devices services materials and
automation
N = 229 respondents, surveyed Oct 2020, InterChina analysis. Confidential 32Many MNCs already declare China as their No. 1 market
Sales in China Sales in RoW Global sales, USD m
Kaz Minerals 76% 24% 2,266
Wynn Resorts 70% 30% 6,611
Yum 61% 39% 14,373
Monolithic Power Systems 61% 39% 628
Murata 53% 47% 14,074
Rio Tinto 51% 49% 43,165
KLA 51% 49% 4,569
BHP Group 50% 50% 44,288
Qualcomm 48% 52% 24,273
Kenmare Resources 47% 53% 271
INPHI Corp 45% 55% 366
Ballard Power Systems 44% 56% 106
Marvell Technology Group 40% 60% 2,699
IPG Photonics 37% 63% 1,315
Maxim Integrated Products 35% 65% 2,314
Webasto 35% 65% 4,342
Infineon 34% 66% 8,863
Nu Skin Enterprises 30% 70% 2,420
Applied Materials 29% 71% 14,608
Intel 28% 72% 71,965
Flex 25% 75% 26,211
Lumentum Holdings Inc. 25% 75% 1,565
Teradyne, Inc. 22% 78% 2,295
Richemont 22% 78% 16,831
BMW 20% 80% 122,019
Source: Company reports. Confidential 33At the same time, the ‘runway’ is getting shorter…
Local competitors expected to catch up fast during this decade
How long will it your product’s international brand equity continue to provide you Survey
with a significant advantage in the Chinese market? results
11 – 20 years 6% 6% 6%
11%
31%
41% 56%
57% 47%
4 – 10 years 49%
67%
71%
67%
38%
14% 35%
1 – 3 years 27% 31%
19% 44%
18%
33%
29%
Already no 22%
advantage 17% 18% 16%
anymore 13% 12%
All Environmental Business Chemicals Construction, Production Consumer Pharma and Automotive
respondents technologies support and materials building equipment goods medical
and services services materials and devices
automation
N = 229 respondents, surveyed Oct 2020, InterChina analysis. Confidential 34China has developed some real heavy-weights… often with
strong government support/coordination
Chinese National Champions vis-à-vis their next global MNC competitors, USD bn sales 2019
Telecom Rolling Shipping Edible Building Machinery Coal Ship Pipelines Steel Chemicals
Stock oils materials Energy Building
1.9x
1.8x 1.1x 146
USD bn 1.1x
y2019 81 80
73 76
2.4x 71
1.2x 65
1.6x 56
2.1x 1.4x
46 43 44
39 37 37
34
1.4x 27 1.1x
23
16
11 8 11 10
CHN Energy
BASF
Transp.
– Mærsk A/S
COFCO
SinoMach
CNBM
OneOK Inc
CSSC
Hyundai Heavy
American Tower
Bombardier
A.P. Møller
ArcherDaniels
ABB
BaoWu
BHP Group
ChemChina
CRRC
Midland
LafargeHolcim
COSCO Shipping
ArcelorMittal
China Tower
PipeChina
*2014 *2015 *2015 *2015 *2016 *2017 *2017 *2019 *2019 *2020 *2021
Source: InterChina Consulting Research and Analysis. *YYYY Year of formation / merged Confidential 35For market followers, it’s now about “up or out” Date MNC China Exit Nov 2020 Experian Plans to exit Chinese market Oct 2020 Auchan Sells Sun Art Retail to Alibaba/ Taobao Oct 2020 Fonterra Sells dairy farms in China to Youran Dairy Group Sept 2020 Arcelik Sells Changzhou washing machine factory to Jiangsu Konka Sept 2020 Renault Sells stake in Dongfeng Renault JV July 2020 Nestle Contemplates sale of bottled water and porridge (Yinlu) businesses June 2020 Superdry Withdraws from Chinese market May 2020 GlobalFoundries Halted JV operations (chip manufacturing) in China Feb 2020 Tesco Exits JV with China Resources, affecting 131 stores Feb 2020 Old Navy Closing of all online and offline stores, exiting the Chinese market Dec 2019 ALD Automotive Sells China leasing and renting business to Nanjing Lixing Oct 2019 Metro Sells 90% of Metro Jinjiang Cash & Carry to Wumart Stores May 2019 Oracle Start of large-scale layoffs in China Source: Public announcements. Confidential 36
With the Pandemic, localization in China achieved a new level
Survey Results by InterChina in H1 2020:
The localization trend has accelerated, more and companies need to adapt
Pre Covid-19 Post Covid-19
Business aspect M&A needs / focus
needs needs
Supply chain raw materials + + /
Supply chain components +/- ++ Fill the gap transactions
R&D and local innovation + ++ R&D and product development
Locally adapted manufacturing ++ ++ Scale
Regional coverage (Tier 1 – Tier 4 cities) +/- + Scale
Financing - + /
Corporate governance (local decision making) - + JV & Alliance
Local competition Local supply chain
Local companies have the advantage of : Global dependency It is hard to compete with
• having cash Cost and speed the local players. Physical
• speed You have to be in China for China presence and local supply
• lean corporate governance Chinese supply chain vs European chain are key.
supply chain
Source: Survey conducted by InterChina H1 2020. Confidential 37The more relevant China is for foreign corporates,
the faster the localization drive
Survey
results
China market relevance for co’s Bubble size: Respondents as % of total.
5% 2% 5%
How long until a full-scale,
fully-localized China ops?
4% 1% 2%
12%
7% 5% 5%
20% 3% 5% 5%
Source: InterChina survey, Oct 2020. n = 229 respondents. Excl. co’s where China may never be a Top 1 or 2 market for their group (19% of all respondents). Confidential 38Three quarters of surveyed companies strive
for full-scale China operations by 2025
Survey
When will be a full-scale China operation (fully localized) necessary for your company? results
% of respondents in each respective sector.
14% 12%
16%
In > 10 years 19% 22% 22%
29% 6%
33%
6%
44% 14% 41%
In 5 to 10 years 7%
28% 12%
34%
In 1 to 5 years 34% 29% 44% 53%
18% 33%
29%
56%
50%
44% 43% 41%
Now already 40%
33% 33%
29% 29%
Total Automotive Others Production Business Consumer Chemicals Construction, Pharma and Environmental
respondents equipment support goods and materials building medical technologies
services materials and devices and services
automation
N = 229 respondents, surveyed Oct 2020, InterChina analysis. Confidential 39Shifting HQ (global, division, or APAC) to China makes sense
once the majority of your sales are in China
Examples of MNC’s global HQs (or, global division HQs) that shifted to China
Functional
Robotics Div. Chemicals BU Gen. Medicine Wind power Pfizer’s generic
From Detroit From Amersfoort From Leverkusen From Denmark drug unit HQ
To Shanghai To Shanghai To Beijing To Beijing From NY to Shanghai
Electronic Environm.
Procur. Div. Materials BU Instrum. Div. X-Ray Div. Desktop BU
From New York From New Jersey From Waltham From Wisconsin From New York From USA From Roseville From Hong Kong
To Shenzhen To Shanghai To Shanghai To Chengdu To Shanghai To Beijing To Shanghai To Shanghai
2006 2008 2009 2010 2011 2012 2014 2015 2020
No. of totally established MNC regional HQs in China 900
848
Beijing 794 180
734 178
Shanghai 690
640 169
587 161
155
530 150
465 142
127
387 112
82 670 720
573 625
490 535
403 445
305 353
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Source: Shanghai Municipal Commission of Commerce, Beijing Municipal Commerce Bureau, Public Media. Confidential 40Speed!
Local customers want suppliers to be faster – but how?
BoD decision making within hours
– daily if needed – via WeChat
Top Trust and empower local GM… Local
with prospects on global BoD GM
BoD Separate China Advisory Board
mgmt
A change of (HQ) mindset: Stop
challenging local customers’ Full localization of (application)
Conceptual/ engineering capabilities /
Local
needs and requirements, but find
Customer ways to deliver in time
Matrices competence: Local quotations pricing
E-marketing instead of Engagement Remote services /
offline conferences model digital service avatars
Faster delivery of Authorized 3rd party
Support
critical spare parts assistance vendors
systems
by 3D printing for quick assistance
Source: InterChina analysis. Confidential 41It has never been more pressing than now
to go for “In China, for China”
BU Matrix HQ Global Division
China subsidiary
Confidential 42MNCs’ China subsidiaries need it, because they have to achieve
a new level of trust with local customers
Do… Demonstrate… Show…
• More branding • More commitment • More understanding
• More marketing • Higher proximity • More flexibility
Payment conditions
Exhibitions & fairs In-country production
Online streaming Onsite service teams +30 to +60 days more
than global practice
(automotive components)
Source: InterChina analysis. Confidential 43The game is on to provide a superior purchasing experience
Unmanned retail stores - Huawei’s new SOTA unmanned Wuhan Optics Valley retail outlet
The Cobalt-designed NODE + Ministore has three pick-up windows and occupies about 54sqm. Goods include snacks and refrigerated fresh food.
The shop has three times the volume efficiency of a regular store. Confidential 44That game is being upped by local players…
It’s time for MNCs now to catch up
Siemens' Electronic
Works Chengdu:
Showcase for the
digital factory.
IKEA City Store
located downtown
Shanghai, opened
in 2020
Kohler’s multi-floor
brand experience
center in Shanghai,
opened in 2020
Confidential 45Further product design localization will be key… Sources: Lego, Kao, Samsung, Anchor. Confidential 46
… but you also got to make stuff affordable
China’s Producer Price Index
105 Monthly PPI (Previous Year=100)
104
103
102
101
100
99
98
97
96
95
94
93
92
91
90
2018-01 2018-07 2019-01 2019-07 2020-01 2020-07
Source: ChinaDaily, NBS Confidential 47In some customer sectors, competition will drive prices down
Survey
results
Price change expectations in different customer sectors
Price change
expected Retail, Energy, Construction Production Automotive Medical
in 2021 C&R O&G, Utilities Public transport Sector OEMs institutions
over 2020
Over +5% 14% 0% 17% 2% 0% 5%
+1% to +5% 62% 50% 33% 37% 18% 26%
Zero % 19% 17% 8% 30% 23% 16%
-1% to -5% 0% 33% 42% 19% 45% 32%
Over -5% 5% 0% 0% 12% 14% 21%
Price cuts imminent
Source: InterChina survey, Oct 2020. n = 229 respondents. 100% = no. of respondents within each customer sector. Confidential 48What does it mean to be “local” for foreign players in China?
The question without a definite answer
Complete separate China block operation
(duplicated and separate supply chain, IP,
production and sales operations)?
Get listed in
Move HQ to Shanghai domestic stock
HK or Singapore? markets?
Acquire a local
company / brand?
Having a Chinese company as a JV partner?
Full use of local suppliers (“local content”) instead of
import components? Local Production development?
In-country production operations (= local WFOE subsidiary incl. local plant)?
Confidential 49The majority of interviewed foreign co’s believe that having a
China plant suffices … yet there are differences by sector
Survey
What does it mean to be “Chinese” in 2021? results
What will you need to have to qualify as a “local” vendor?
% of respondents by sector
Have a 17%
Chinese JV 23% 20% 20%
25% 26% 24%
partner 35% 33%
Own / acquire a
10%
majority share 4% 21% 8%
14%
in a local co’ 4%
Own / acquire a 8%
5% 2% 40%
minority share 13% 17%
in a local co’ 30%
75%
Have in-country 65%
production 58% 60% 60%
operations 52% 50%
40% 40%
Total Automotive Construction, Production Pharma and Consumer Chemicals Business Environmental
respondents building equipment medical devices goods and materials support technologies
materials and services and services
automation
N = 229 respondents, surveyed Oct 2020, InterChina analysis. Confidential 50Semicon makers in China would define a Chinese vendor that was
acquired by a foreign player as “local”… yet the devil is in the details
Customers’ (5 semicon makers, Sept 2020)
acceptance of suppliers of different origins
Co 1 Co 2 Co 3 Co 4 Co 5
Chinese co’s where a foreign co’ owns minority share • • • • •
Chinese co’s where a foreign co’ owns majority share • • • • •
Taiwanese co’s •• • • • ••
Supplier origin identity
US co’s • • • • •
US co’s with HQ in Asia • • • • •
US co’s listed in China or HK • • • • •
European co’s • • • • •
EU co’s with HQ in Asia • • • • •
EU co’s listed in China or HK • • • • •
• If the brand/tech is not from China “foreign company”.
• If the brand/tech is not from China, but vendor’s majority/minority share is owned by Chinese “Chinese company”.
• If the company’s tech/management is originated in China, no matter how the ownership looks like “Chinese company”.
• Many Chinese customers put US and EU suppliers into the same bucket.
• Taiwanese co’s are seen as “foreign companies”, not as Chinese companies.
• Favored / preferred • Tolerated, yet second choice • • Third choice • Not wanted anymore in the future Confidential 51In many sectors, a local JV partner is not necessarily required,
but could still be helpful or useful
Is a local JV partner necessary for foreign companies in China in the near future?
Sector To guarantee market access To facilitate payments To deal w. local authorities 1
Logistics Yes Yes Yes
Defense / military Yes Yes Yes
Construction Yes Yes Yes
Railway Yes Yes Yes
Shipbuilding Yes Yes Yes
IT / Telecom infrastructure Yes Partly Partly
Mining Yes Yes Yes
Media Yes Partly Partly
Agriculture Partly Yes Yes
Medical devices Partly Yes Yes
Oil & Gas Partly Yes Yes
Pharma Partly Partly Yes
Chemicals Partly Partly Yes
Automotive components No Partly Partly
Machinery No Partly Partly
Consumer goods No No Partly
This is not a legal or regulatory analysis, but based on the recent practical experience of foreign players. 1 Registration, licenses, land, etc.
Source: InterChina estimation and analysis. Confidential 52Half of surveyed co’s consider partnering with local co’s via
M&A in the near future to protect their businesses
Do you consider partnerships
with powerful Chinese companies to provide protection in China? Survey
results
% of respondents by sector
0% 0% 3% 0%
Yes, at global level 5% 6%
11% 11%
33%
41%
25% 44%
Yes 42%
59%
45% 53%
67% 64%
59%
No 53% 53%
44% 41% 41%
Total Chemicals Services Construction, Production Automotive Consumer Pharma and
respondents and materials building equipment goods medical
materials and devices
automation
N = 229 respondents, surveyed Oct 2020, InterChina analysis. Confidential 53Valuation expectations will remain high
PE ratios of A share listed PE ratios of
co’s in China, by sector PE ratios of companies listed in China global exchanges
Median PE Ratio 2020 1H Shenzhen Shanghai Hong Kong NEEQ STAR Median 2020 1H
80
67
62
55 54
46 43 44
42
36
36 34 33
29 28 28 28
24 22
18 18 19
15 15 16 16
14 13 13 13 14 14
12
10 10 9 10 10
discretionary
Utilities
IT
staples
Consumer
Consumer
Real Estate
Energy
NASDAQ
2016
2017
2018
2019
2016
2017
2018
2019
2016
2017
2018
2019
2016
2017
2018
2019
2019
Tokyo SE
London SE
Telecom.
Healthcare
Materials
Financials
2020 H1
2020 H1
2020 H1
2020 H1
2020 H1
services
Industrials
NYSE
Euronext
Source: Bloomberg. Median P/E ratio as of Dec 31 of each year; and WIND, Median P/E ratio as of Jun30, 2020 Confidential 54Local players delisting from the NEEQ market have become a
real and feasible opportunity for MNCs to acquire
NEEQ delisted co’s with previous net asset value of >RMB 10 p. share
代码 名称 挂牌日期 退市日期 退市时每股净资产(元) 终止上市原因
870047.OC 云图动漫(退市) 2016-12-01 2020-10-14 10.49 生产经营调整
837112.OC 大洋生物(退市) 2016-04-26 2020-09-21 11.91 转板上市
835124.OC 泰坦科技(退市) 2015-12-25 2020-08-31 10.21 转板上市
832422.OC 福昕软件(退市) 2015-05-12 2020-08-14 10.78 转板上市
834613.OC 亿华通(退市) 2016-01-13 2020-06-18 19.95 转板上市
832388.OC 龙磁科技(退市) 2015-05-05 2020-02-19 10.10 转板上市
870692.OC 神舟汽车(退市) 2017-03-02 2020-02-10 13.30 其它不符合挂牌的情形
835966.OC 创新工场(退市) 2016-02-06 2020-01-03 15.45 其它不符合挂牌的情形
430141.OC 久日新材(退市) 2012-09-05 2019-10-15 11.30 转板上市
870526.OC 玉星生物(退市) 2017-02-16 2019-09-19 13.61 其它不符合挂牌的情形
834090.OC 兴达泡塑(退市) 2015-11-10 2019-09-18 17.50 其它不符合挂牌的情形
871967.OC 安致股份(退市) 2017-09-15 2019-08-01 18.10 其它不符合挂牌的情形
872647.OC 东松医疗(退市) 2018-04-24 2019-07-17 11.35 生产经营调整
833329.OC 利达股份(退市) 2015-10-15 2019-07-12 12.79 生产经营调整
832938.OC 国林环保(退市) 2015-07-28 2019-07-10 10.51 转板上市
839006.OC 维纳股份(退市) 2016-08-16 2019-07-08 17.46 其它不符合挂牌的情形
834742.OC 麦克韦尔(退市) 2015-12-12 2019-06-05 14.88 其它不符合挂牌的情形
839527.OC 移康智能(退市) 2016-11-26 2019-04-25 37.20 其它不符合挂牌的情形
834206.OC 傲基电商(退市) 2015-11-14 2019-04-16 11.99 转板上市
870744.OC 数策股份(退市) 2017-02-17 2019-04-02 12.86 生产经营调整
837731.OC 分享时代(退市) 2016-06-23 2019-02-15 10.35 其它不符合挂牌的情形
833536.OC 香堤湾(退市) 2015-09-16 2019-02-13 37.92 其它不符合挂牌的情形
835577.OC 庞森商业(退市) 2016-01-15 2019-01-28 16.50 生产经营调整
872484.OC 元码基因(退市) 2017-12-30 2019-01-16 16.01 生产经营调整
Source: NEEQ. Confidential 55MNCs start to move on M&A opportunities now
Despite IPO prospects, local Opportunity to acquire at Shorter time to deal
targets are open to join MNCs reasonable prices compared to 10 years ago
Result of a recent target search Avg Negotiation timeline
Target Target Target Typical transaction multiple Year No. of months
1 2 3
closed by InterChina in 2020
Target Target Target 8 – 10x EBIDTA 2020 1 2 3 4 5
4 5 6
• Not 100% buy-out
1111111
Target Target Target 2010 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6
7 8 9
• Original business owners
stay for some time
Target open to divest majority of shares
Target open to divest minority of shares
Target interested in commercial coop.
Source: InterChina analysis. Confidential 56China CEO Agenda 2021:Full-scale or nothing
Do I have sufficiently ambitious growth vision,
will I reach scale, and how I do it? What happens if I lose our
1 business loses its
relevance?
To reach scale, I may need to diversify my markets and
enter new markets / segments – how can I understand those
2 markets?
Do I have a clear answer to what it means to be local?
Am I sure I will further qualify as a vendor?
3 What else do I have
localize immediately?
Do I need a partner to grow? What type, what kind?
Do I have a proactive M&A / consolidation strategy… am I
4 scouting proactively
for partners / targets?
Is my local team ready for more responsibility,
decision making, taking risks? Do skills learned in the past 10
5 years apply
for the next decade?
Confidential 57… and how InterChina can help
Do I have sufficiently ambitious growth vision, Benchmarking with competitors,
will I reach scale, and how I do it? What happens if I lose our offset against category growth and
1 business loses its size expectations; Growth strategy
relevance? InterChina’s offering vs divestment option
To reach scale, I may need to diversify my markets and
Understand value footprint at
enter new markets / segments – how can I understand those
2 customers’ site of different
markets?
InterChina’s offering technologies / offerings
Do I have a clear answer to what it means to be local?
Am I sure I will further qualify as a vendor? Customer requirement assessment
3 What else do I have – in-depth discussions
localize immediately? InterChina’s offering Establish peers’ best practices
Do I need a partner to grow? What type, what kind?
M&A target search and pipe line
Do I have a proactive M&A / consolidation strategy… am I
4 scouting proactively
Pro-active approach of partners, deal
InterChina’s offering negotiation and closure
for partners / targets?
Is my local team ready for more responsibility, Support for opportunity
decision making, taking risks? Do skills learned in the past 10 assessments, business cases, risk
5 years apply areas, areas beyond local team’s
for the next decade? InterChina’s offering comfort levels
Confidential 583
New, disruptive sectors
Confidential 59In many product sectors, China is emerging as a tech leader
China ahead of China catches
other countries up quickly
New proteins
Consumer goods & retail C&R value chain disrupters
Omnichannel
Consumer health
Unmanned stores
Leisure / experience economy
Farming modernization
Gaming
Pets value chain
AI imaging
E-prescription
Digital R&D In turn, many local
Healthcare
IOT wearables
Diagnostics / IVD / pathology Chinese players have
Surgical robots, 3D printing risen or will rise rapidly
Innovative drugs and APIs
Innovative APIs
New energy sources
Drones
Automated driving
New mobility infrastructure
Industrial
Shared mobility
Private space co’s
Industrial robots
EaaS
Semiconductors
Sensor technology
Source: InterChina analysis. Confidential 60Our ideas of “vectors”
Drones Food delivery Toys Face recog.
What is a vector? For example…
A local company that … creating a new Vector co sales Supply Vector co sales Supply
comes out of nowhere supplier eco- (RMB bn) opportunities (RMB bn) opportunities
and grows very fast … system behind it
5
• Chips • Cameras, lenses
Pull Pull
• Infrared • Plastic mold equ.
+83% cameras +344%
Pull Pull
2 • Sheet metal equ.
18 • Transponders
10
3
6 Pull 0 Pull • Datacenter equ.
• Batteries 0
Pull • Raw materials 2014 2019 2014 2019
• Consumables Vector co sales Supply Vector co sales Supply
(RMB bn) opportunities (RMB bn) opportunities
Pull • Equipment
98 1.7 • Plastic inj. equ.
• Services Pull • Bikes, parts Pull
• Vending
65
machines
+96% • Thermo pka. +147%
Pull • Support systems Pull materials Pull
34
0.5
• Packaging
solutions
13
• AI / AD tech.
Pull 0.2 Pull
4 0.1
• IP brands
• F&B brands
y1 y2 y3 y4 y5 2014 2019 2014 2019 licensing
Source: Company annual reports. Confidential 61Vector co’s are a different kind of customer, making it often an
unprecedented and difficult experience for vendors
Example: Tesla China… Example: Automated e-commerce distribution
centers of Alibaba (Cainiao) and JD.com…
… means for T1 parts and equ. suppliers: … mean for advanced automation solutions vendors:
• No standard in China (no copy/paste), • Prefer local solutions over foreign
existing relations w. Tesla US not useful • Very cost sensitive, much shorter payback horizon
• Quick delivery time is key • Request more flexible solutions, low-automation
• Sometimes buy already-used equ. degrees for most activity steps
• Demonstrate cost savings, future upside. • Easy and immediate spare parts availability
Source: InterChina analysis. Confidential 62We are actively pursuing 12 vector areas currently…
Consumer goods & retail Smart manufacturing
New proteins Value Chain Disruption Smart factories X as a Service
Smart systems
AI imaging E-prescription Semicon solutions Sensor solutions
Healthcare
IOT / wearables AD / drones Batteries, fuel cells Private space co’s
Smart Mobility
Confidential 63Examples of local vector companies
Autonomous driving hardware and software Semicon systems and equ.
Xiaopeng Motors www.xiaopeng.com Advanced Micro-Fabrication www.amec-inc.com
Shenzhen Robosense www.robosense.cn Beijing Huafeng Test & Control www.accotest.com
Ofilm Tech www.ofilm.com Hangzhou Chang Chuan www.hzcctech.com
Navinfo www.navinfo.com Shanghai Micro Electronics Equ. www.smee.com.cn
Beijing Autoroad Tech www.autoroad.com NAURA Technology www.naura.com
Alternative proteins Digital medtech (AI imaging, e-marketing)
HongChang Bio-Tech www.hongchangfood.cn Wanlicloud www.wlycloud.com/
www.greenmonday.org www.united-imaging.com/
Green Monday Ucloud cn/product/ucloud/
Starfield www.starfieldcn.com Neusoft Medicloud www.medimagecloud.com
Zhen Meat www.zhenmeat.com Ding Xiang Yuan www.dxy.cn
Z - Rou www.youkuaifood.com Medlive www.medlive.cn
Source: InterChina analysis. Confidential 64China CEO Agenda 2021: New, disruptive sectors
What will really happen in this sector?
How big will “big” be by 2025?
1 What’s the real risk of
engaging early on?
What do I need to change / adapt to convert those new
players into future key accounts of mine?
2 How are they thinking
differently?
How is the value chain and ecosystem evolving and
shaping up in the future in that sector?
3 Should I acquire an
emerging tech co?
Are there local players with great technology that I
could take global?
4
Do I need to be local to be successful in this sector?
If so, what does “local” mean?
5
Confidential 65New, disruptive sectors
… and how InterChina can help
Are there emerging sectors that impact me, and what Market research, forecast
opportunity, threat will they bring? What’s the real risk Risk assessment
1 of engaging early on? Comparison to previous fast-
InterChina’s offering growing sectors in China
How to compete in such sectors? What do I need to
In-depth customer interviews
change / adapt to convert those new players into
2 Mirror current vendors’ best practices
future key accounts
InterChina’s offering New engagement model options
of mine?
How do I play a new ecosystem? How is the value
chain evolving and shaping up in the future in that sector? Collect opinions of key players
3 Should I acquire an Assess strengths / weaknesses
emerging tech co? InterChina’s offering Build-up M&A target pipeline
Are there local players with great technology that I
Technology comparison
could take global?
4 R&D pipeline assessment
InterChina’s offering Collect current customer opinions
What new governance structure do I need to drive this Understand peer’s best practices
forward? Identify weaknesses and strength
5
Design new structure
InterChina’s offering
Confidential 663 example deep-dives on Disruptive Sectors in this
presentation…
Consumer goods & retail Smart manufacturing
New proteins Value Chain Disruption Smart factories X as a Service
Plant-based, cultured • Ghost Kitchens • Robotics • Equipment aaS
meat, dairy, beverages • Online B2B • Automation equ. • Equipment leasing
• Direct Farm-To-Fork • 3D printing • Industr. Software
• Software & solutions, • VR / AR
• Industry 4.0
Smart systems
AI imaging E-prescription Semicon solutions Sensor solutions
• Smart microscopes • Medical e-commerce • Chips manufacturing • Sensors
• AI supported Dx • Digital promotion • Equipment and tools • Cameras and lenses
• Scan / Image • Retail pharmacies • Software & integration • LIDAR
reading systems • Private clinics • Materials • Machine vision
Healthcare
IOT / wearables AD / drones Batteries, fuel cells Private space co’s
• Medical fit bits • L4/5 ADAS solutions • NEV batteries • Satellite tech.
• Remote diagnostics • Robotaxis, air taxis • Battery components • Propulsion tech.
• Rehab devices • Drones • Hydrogen fuel cells • 3D printing
• Fuel cell components • Machine tools
Smart Mobility
Confidential 67Example Disruptive Sector Deep-Dive
AGVs for automated warehousing
Confidential 68Example Deep-Dive
Alternative proteins
Focus on plant
based meats
Confidential 69There is much hype over the potential of plant-based meats in
China, projected to grow to RMB 100 billion by 2025 …
China Plant-Based Meat
Market Potential
Frequently
RMB 100 Billion
Cited Market
Growth Drivers
Demand:
Growing protein intake.
(2025)
But concerns about animal protein.
Flexitarianism the modern lifestyle.
Source: Euromonitor
Supply:
Strategic focus for international majors.
Chinese new entrants, innovation.
Support from private equity financing.
Product:
Customization to Chinese needs.
New higher performance proteins.
Lower costs over time.
Policy:
Improved food security.
Mitigate farming risk.
Source: Euromonitor, Media Reports. Confidential 70… However, China is starting from a very different position to
most Western countries …
China’s Unique Starting Point
Plant Protein Already A Mainstay Soy Known As A Filler Existing Faux Meat Category
• Meat consumption in China has only • As China’s food industry has • Plant-based faux meat has been part of
been on the rise for the past 30~40 industrialized, soy derivatives have often Buddhist cuisine in China for centuries,
years. Plant protein has long been the been used as fillers in processed meat and produced by Chinese companies on
mainstay of Chinese diets, and soy- products to bulk up volumes and a commercial scale for decades.
based products remain ubiquitous. improve mouthfeel.
• It is not only perceived to be a religious
• Chinese consumers thus both perceive • Chinese consumers increasingly perceive and vegetarian product, but
plant protein to be economical, and heavily processed products with long incomparable to the sensory
have sophisticated expectations for what ingredients labels reliant on fillers as characteristics of real meat.
plant proteins should deliver. inferior to real meat in terms of both
• As such, it has remained a niche
health and sensory characteristics.
• But at this stage, it is meat that is category, with vegetarian restaurants
generally considered the more • The premium price is commanded not only accounting for 5,000 of China’s
pleasurable to consume and a reflection by processed protein but by real meat. three million restaurants.
of a higher quality of life.
Source: InterChina Interviews & Analysis. Confidential 71… As plant-based meat players replicate the richness of Chinese
cuisine, they face a range of technical challenges …
The Technical Challenge Of Chinese Cuisine
Big Protein Applications Ingredient Interaction Cooking Methods Geographic Relevance
One Melted Over The Other Commonplace Method Widespread Burger Chain Density
Western
Cuisine
(E.g. US)
A Multitude Of Ingredients Range Of Methods Diversity In Regional Pallets
煮 炸 烤
Boil Deep Fry Roast
Chinese
Cuisine
蒸 煎 炒
Steam Pan Fry Stir Fry
In China, burgers are not a In Chinese dishes, in addition to A Chinese kitchen uses more In contrast to the West, where
mainstay of Chinese cuisine like in using different formats of the cooking methods than in most burgers are popular everywhere,
the West. For instance there is no base protein, the protein is also cultures. A base protein needs to China is not one single food
equivalent to a burger patty that cooked together with many be able to be stir-fried, deep-fried, market. Each province has its
accounts for a huge share of additional ingredients, ranging pan-fried, boiled, steamed and own cuisine, range of dishes, and
meat consumption, especially one from oils to vegetables to roasted (among other methods). unique food flavours. This creates
that only needs grilling before seasonings. This creates complex This wide range of methods huge variety.
being ready to eat. chemical reactions which affect exposes the protein to extremes
sensory characteristics. of physical stresses.
Source: InterChina Interviews & Analysis. Confidential 72… Nevertheless, we are now starting to see encouraging signals,
with vibrant activity up and down the value chain …
Plant-Based Meat Value Chain Activity In China
Technology Raw Materials Mid-Stream Ingredients Finished Product Food Retail
Manufacture & Food Service
• SGS & Thermofisher: • Shuangta Food: • DuPont: Cooperating • Beyond Meat: • KFC China: Launched
Strategic alliance to Provides pea protein with Jinzi Ham. Establishing factory in plant-based meat
promote the establish raw material for Jiaxing (Zhejiang sandwich in June 2020.
of management Beyond Meat. • Firmenich: Providing Province).
systems for plant- plant-based meat flavor • Starbucks: Added
based meat. • Roquette: Signed a solutions in China. • Jinzi Ham: plant-based product
long-term pea protein Cooperating with range to food offering.
• CAAS: Launched supply agreement with • Apple: Launched five Dupont.
research into plant- Beyond Meat. plant-based meat • FreshHema: Carrying
based meat. products. • Ningbo Sulian, Beyond Meat burgers.
• Cargill: Acquired a Qishan Food &
• Jiangnan University: Soybean plant in China. • Huabao: Developing Hongchang Food: • Tmall International:
Plant-based meat Launched PlantEver in and manufacturing Traditional Chinese Promoted plant-based
research cooperation China, a brand of flavor peptide products. vegetarian food meat products on Black
with MYS. plant-based meat. producers moving into Friday, 2019.
• Meihua: Focusing on plant-based meat.
• Beijing Technology amino acid and • PlanetGreen:
University: flavoring fields. • Green Monday: Will Starfield building its
Cooperating with Zhen set up factory in own offline retail
Meat to develop plant- Guangdong this year. network.
based mooncakes
among other products. • Omnipork: Launching
new plant-based meat
products and moving
into large supermarkets.
Case • Other Start-Ups:
Study Starfield, Zhen Meat,
Z-Rou.
Source: InterChina Interviews & Analysis. Confidential 73You can also read
