Chinese companies have been increasingly looking to expand abroad, particularly in response to slowing growth at home. Despite this trend, analysts from HSBC have found that the contribution of overseas revenue to the total for Chinese businesses is still very low compared to their Japanese counterparts.
According to HSBC analysts, just 11.7% of total revenue for mainland China-listed companies came from outside the country last year. This percentage drops even further to 10.3% when looking at the largest companies tracked by the CSI 300 index. In contrast, Japanese companies in the Nikkei 225 saw 35.3% of their revenue coming from overseas in the same period.
Sectors with Room for Growth
HSBC’s analysis revealed that Chinese companies have a lot of room for growth in various sectors when it comes to expanding their international revenue. Industries like electrical equipment, machinery, and pharmaceuticals all have significantly lower contributions from overseas sources compared to their Japanese counterparts.
Stock Picks for Global Expansion
HSBC analysts have identified several Chinese companies that they believe have potential for global expansion. Among them are Gongniu, an electrical products company, Anker, a seller of power banks and chargers, Zhejiang Dingli, a manufacturer of lifts, and Snibe, a seller of clinical laboratory instruments. These companies have been rated as buys by the analysts based on their growth potential in international markets.
While Chinese companies have shown a growing interest in expanding abroad, new U.S. and EU tariffs pose a potential challenge. The escalating trade tensions between the U.S. and China add uncertainty to how broadly Chinese companies will be able to benefit from overseas markets.
Despite the challenges, HSBC analysts point out that China still has room to increase its overseas direct investment. The report highlights that the current level of overseas direct investment relative to GDP in China is similar to that of Japan in 2012 and Germany in 1992. Investing in local factories and subsidiaries in other countries can help boost employment and strengthen China’s presence in global markets.
While Chinese companies have made strides in expanding their presence in international markets, there is still a significant amount of untapped potential. By leveraging opportunities in sectors like consumer products and electric cars, Chinese companies can continue to grow and establish themselves as major players in the global economy. However, it is important for these companies to navigate the challenges posed by tariffs and trade tensions in order to realize their full global expansion potential.