Since my last visit to China four years ago, the country’s economy has grown by one third. This is a country in motion. And standing on the Bund in Shanghai last week, I could have been in any major city in the world.

But taking a short flight to Inner Mongolia in the north, I started to realise how different China is and how little I knew about this vast and diverse country.

Ask a Chinese person if they have heard of Ireland, and they will probably look blankly. Look at their map of the world and we are on the far western edge, barely visible. They know Europe and they’ve heard of Riverdance. Some may know it is somewhere near England or Scotland. But surprisingly, if they do know, they ask if it really is as green and pure as images show. For them, a smog-filled Beijing couldn’t be more different.

Sheer scale

The first effect of China’s rise is its population. It has 20% of the world’s population, and four times that of the US. Yet it has only 10% of the world’s land, being similar in size to the US.

You need to think of China as a continent in terms of size and diversity. China is divided into provinces. It would be impossible to run a country the size of China from Beijing. In practice, the provinces enjoy great autonomy and are far more diverse than Europe’s countries.

Four provinces, Shandong, Henan, Jiansu and Anhui, have a combined population larger than the US, while nine provinces have a population as large as or bigger than France or the UK.

While Beijing and Shanghai have a combined population in excess of 40 million, there are over 140 cities in China with more than one million people. Most people, I’m sure, would struggle to name 10 of them.

Growth

The second effect of China’s rise concerns the impact of its economic scale on the rest of the world. China is poised to overtake the US as the world’s largest economy by 2024. China’s average annual growth rate of GDP since 1978 has been 9%. And even though the country is slowing down, the World Bank is still estimating average GDP growth in China of 7.5% from 2014 to 2016.

The third effect is the impact China will have on world trade. Before the open door policy, China was one of the world’s most closed economies. In 1970, its export trade made up only 0.7% of the world’s total. China is now the world’s largest exporter, the second-largest importer and the largest trading nation.

Each of these scale effects – population, economy and trade – has a mainly positive impact on the rest of the world.

But a further effect, China’s consumption of resources, has a largely negative global impact. Because the country has so few natural resources, its population so enormous and its economic development so intensive, its demand for natural resources has the effect of raising the price of raw materials for most western producers. This is one of the reasons commodities such as oil, steel and fertilizer have increased significantly in recent years.

The most obvious danger facing China has been and remains its high level of dependence on trade.

Ireland exported €390m worth of food and drinks to China last year. This was up 40% on the year previous and three times the amount of three years ago. China is now Ireland’s sixth-largest market overall for food and beverages, driven by strong dairy and pork exports.

Outward investment

A major trend is that Chinese firms are investing heavily abroad. Chinese companies have a desire to acquire the resources, expertise and brands of foreign companies.

Last year, according to Deloitte, China spent €54.1bn acquiring foreign companies. The largest of these deals was Shuanghui purchasing Smithfield Foods for €5.4bn.

Irish food and beverage producers have not attracted the same level of interest from Chinese acquirers as their US or European counterparts. This is mainly due to the fact that many of the merger and acquisitions opportunities available in Ireland are simply too small.

For what is still a poor country, with a GDP per capita of only $6,804, China is already having a profound impact on the world. Although parts of China are already prosperous and developed, around half of the population still lives in the countryside. China remains very much a developing country that has little in common with the west.

Westernisation

Western fast-food restaurants have become status symbols and indicate the location of the new middle classes. The first McDonald’s in China opened in 1991. Today, there are over 2,000 McDonald’s restaurants in China. There are 4,500 KFCs, while Starbucks will have 1,500 locations by the end of 2015.

It shows that they can live the western lifestyle. A Big Mac meal in China costs the equivalent of €2.50, about a third of the Irish price – a rough economic indicator.

Often the economic development of a Chinese city is defined by what type of fast-food restaurant it has. If it has a KFC, it is on the first rung of development, but still poor. A McDonald’s means it is on its way. If, however, there is a Starbucks, this city has made it to true western status. Dairy companies would be right to follow Starbucks’ locations. This means the city’s population drinks coffee that takes milk and they eat cheesecakes.

The combined total of all US fast-food stores, however, represents a very tiny fraction of the restaurants and eating places in China. The majority of people continue to consume the food indigenous to their country.

Youth

Every year, China gives birth to a city the size of London. That is about 16 million babies per year. And this is in a country with a one-child policy. With this policy relaxing, it is estimated that if those who are eligible to have another child do so, an additional two million babies will be born each year.

The millennials (those under 35) are more outward focused and have a desire to become more westernised. They live on their mobiles, are connected to the world, and dine in McDonald’s. They love western brands. China is now the largest market for many of the high-end fashion labels.

They drive Mercedes and BMWs and there are Ferrari and Porsche showrooms on the high street. If you have money in China, you show it off.

Because of the one-child policy, these millennials have no siblings and are children of parents who have no siblings. This means there are six people (two parents and two sets of grandparents) caring for one child. These children are little emperors. They receive the best and are growing up to expect this.

And this is one of the reasons imported infant formula commands such premiums in China. This is not about infant formula – it’s about giving the very best to your child.

A tin of Irish imported infant formula can retail at up to €50. In supermarkets, it is kept under lock and key.

But there is an aging population and in general old people don’t have money like in the western world. Few have pensions and even less own their home.

Opportunities

  • It is the fourth-largest importer of food and even niche markets are big.
  • Growth drivers continue to be rising income, increased urbanisation, improved logistics and concern for food safety.
  • The middle class is predicted to soar to 607 million by 2020. That’s double the total population of the US.
  • Their reducing dependence on a single supply region, ie New Zealand.
  • Threats

  • China is addressing its food safety concerns.
  • China is reducing its dependence on food imports and addressing food security.
  • The government owns many Chinese food companies.
  • Potential decline in demand for foreign imports in the longer term.
  • Comment

    While there is no doubt Ireland needs to be in this massive market, where even a niche product can have huge scale, perhaps the real opportunity for Ireland will be in China’s ability to suck up a large proportion of global trade. The displacement effect of this could provide new opportunities for Irish products to achieve a premium in traditional markets.