Chinese firms’ overseas expansion drive opens up opportunities for Citigroup

Chinese companies are in a rush to go global amid a competitive domestic landscape and overall slower consumption at home.

Even with many cultural hurdles to overcome, a global expansion presents lucrative opportunities for medium to large Chinese companies, both in terms of making profits and diversifying risks, creating business opportunities for lenders such as Citigroup, according to a top executive.

“Chinese companies are especially looking at emerging markets like the Middle East, Asean and Africa,” said Lin Hai, head of Citi Commercial Bank (CCB) for China. “But some of the biggest challenges they face include lack of local know-how.”

China’s retail sales, a gauge of consumption, rose 2 per cent in June, slowing significantly from a 3.7 per cent increase in May, proving further impetus for the overseas drive.

Some Chinese brands are turning to Asian countries where their products – like bubble tea, for example – are more familiar to consumers. Others that are less culturally specific, such as car makers, are looking to the West where their products can fetch higher prices than in China.

Cosmetics maker Maogeping and Midea, the world’s biggest home appliances maker, are hoping to expand globally after public listings in Hong Kong. Maogeping is the only domestic player in cosmetics that was among the top 10 premium beauty companies in China, ranking eighth by retail sales in 2022, according to data from consultancy Frost & Sullivan.

Like Midea, Maogeping’s prospectus revealed its plans to use a portion of the proceeds from the proposed initial public offering to strengthen its global brand presence and increase overseas market penetration.

The tech company said it would soon be setting up an office in Riyadh, capital of Saudi Arabia, and expanding in countries like Brazil and Indonesia.

Those moves make sense as emerging markets are experiencing rapid economic growth, have a growing middle class and big population, making them attractive for Chinese companies, said Lin. Going global is also a way to diversify risk, he added.

As a result Citigroup has been fielding rising inquiries from companies on setting up manufacturing capabilities in other markets and getting products closer to the end buyer, he said.

In the last 18 months, the US bank has seen cross-border activity with Latin America double, and triple with the Middle East and Africa.

“Amid ongoing geopolitical tensions, it is important for corporations to have a diversified strategy and not put all their eggs in one basket,” he said. “If you just concentrate all your business in one country, there’s a higher risk of being impacted by tensions.”

With more Chinese companies going global, Citigroup has seen a 20 per cent uptick in the first quarter of this year in the number of mainland Chinese businesses setting up bank accounts overseas.

“As a global bank, the execution [of loans] can be very fast and companies have been looking at various places, from Mexico and Brazil to Vietnam and Malaysia,” said Lin.

But global expansion comes with its own array of challenges, he said, pointing out that local regulatory environments and tax regimes can be complicated. Figuring out how to best set up the company structure and fund local operations can be challenging, he added.

Another common pain point is sourcing the right people. “Finding enough skilled and trustworthy mid-level management to manage overseas business is a common issue for Chinese corporations,” he said.

Cultural adaptability and branding strategies are some of the other challenges Chinese companies will have to navigate as they increasingly head abroad, he added.