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Countries and markets 2/2024: The Year of the Dragon in China – Geopolitics, regulation and weak economy challenge export companies but the market continues to offer opportunities for Finnish businesses
Tensions in trade relations between the EU and China have already increased during year 2024. The European Commission decided to impose temporary tariffs on Chinese electric cars, but the views of the Member States are strongly divided in the matter.
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Companies around the world have woken up to examine their dependence on China. The prevailing geopolitical situation, increased regulation and the challenges of the Chinese economy have led companies to reflect on their strategy on China for a good reason. The business of Finnish companies dependent on the Chinese market or raw materials is also hampered by trade policy unpredictability between the US, the EU and China as well as potential counter tariffs imposed as a response to tariffs envisaged by Donald Trump, who will be reinstated as US President in January 2025. China also continues to offer significant opportunities for Finnish companies, however. China is the world’s second largest economy as well as Finland’s 5th largest trading partner and largest export country among the emerging markets. For export companies, market knowledge and preparing for export risks are the key.
Notably, tensions in trade relations between the EU and China already increased in 2024 before Trump was elected. The European Commission decided to impose temporary tariffs on Chinese electric cars in July. In October, EU Member States voted in favour of longer-term import duties. A common view of the matter was sought in vein, however, and the Member States were strongly divided in the vote: 10 countries voted in favour and 5 against the duties, while 12 countries abstained.
Growth of the Chinese economy has slowed down, demand for consumer goods and services remains strong
In recent years, China’s long-standing economic growth has shown signs of slowing down. The reasons for this include China’s mounting national debt, the ageing of the population and global economic tensions. A challenging situation in the Chinese real estate sector also continues. However, the Chinese government has striven to support growth by means of various economic stimulus measures, including support for infrastructure projects and innovation. This may also create opportunities for Finnish companies.
Growth of the middle class and urbanisation in China are also important factors that offer opportunities for exporting consumer goods and services. Chinese consumers are increasingly interested in high-quality and environmentally friendly products. This may benefit Finnish companies, whose strengths include corporate responsibility and innovative products.
China continues to offer export potential for Finnish companies – cooperation with Chinese companies is also an opportunity
Finnish companies have significant opportunities in China, for example in the field of technological and environmental innovations. China’s efforts to reduce its carbon dioxide emissions and transition towards a more sustainable economy provide Finnish cleantech companies with opportunities to offer renewable energy, circular economy and energy efficiency solutions. In addition, Finnish education expertise, healthcare technologies and digital solutions can benefit from China’s growing interest in high-quality services and technologies.
Cooperation with Chinese companies is another key opportunity for Finnish businesses. Strategic partnerships can help Finnish companies gain better access to the Chinese market and reduce the risks associated with regulation and market entry. This may also help companies capitalise on China’s large market and growing middle class.
On the other hand, it is important for Finnish companies dependent on the Chinese market to improve their flexibility and adaptability in the rapidly changing geopolitical and economic situation. This may mean decentralising supply chains and seeking alternative markets in Asia and other regions.
Regulation and trade barriers require attention in the Chinese market – Market knowledge and Finnvera’s help support risk management
Tensions in the trade relations between China and the United States have increased uncertainty in international trade, and many sectors have already been negatively affected by tariffs and trade barriers between these countries. Finnish companies operating in the Chinese market may face complex regulatory requirements and market access restrictions related to geopolitical conflicts between China and other countries. This may affect technology companies, in particular, which are forced to navigate around strict export rules and possible technology restrictions.
Geopolitical tensions in Asia and the Pacific Ocean may also affect supply chains and business continuity. Conflicts may disrupt the transport of goods and cause delays in supply chains, increasing costs and complicating logistical processes. This underlines the need to diversify supply chains and seek alternative markets.
Understanding and anticipating the effects of geopolitical conflicts on trade with China will enable exporters doing business in the country to prepare for the risks better. This will help them protect their business interests and remain flexible. With its export credit guarantees and export financing, Finnvera can help Finnish companies protect themselves against commercial and political risks associated with exports.
Finnvera’s process of considering export credit guarantees for China is flexible. A diverse range of Finnvera’s export financing instruments can be used for exports to China, as long as the buyer's credit risk and the project’s financing structure are in order.
Further information:
Jere Nieminen, the author, is Regional Manager in Finnvera’s Country Risk Management Team. He monitors market developments especially in South and East Asia, Middle East, North Africa and North America.
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