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 As Chinese rivals gain expertise in areas from elevators to
healthcare to sweeteners while unexpectedly weak demand exposes yet
more unneeded supply, prices are falling even in areas foreign
suppliers thought were insulated from local competition.
A Chinese interest rate cut and loosening of bank lending
restrictions this week designed to boost lending to Chinese
businesses underscored Beijing's determination to stimulate local
consumption and production.
The move, on the heels of a surprise yuan devaluation two weeks ago,
has further unnerved investors who bought into the growth stories of
European exporters dependent on China.
German industrial group ThyssenKrupp, Dutch healthcare and consumer
group Philips and British food ingredients group Tate & Lyle are
among those adjusting for lower growth and a new intensity in price
wars.
"The message which we have given the team in China is the following:
You need to move up your margin," ThyssenKrupp Chief Executive
Heinrich Hiesinger told analysts this month, referring to the
group's elevator business, its most profitable unit.
"If they have the risk that the growth or the market would force
that margin going down, then they would get the message: Be more
selective, because we do not want you to dilute."
ThyssenKrupp depends on China for 16 percent of sales at its
elevator unit, which makes both high-end lifts and escalators for
commercial buildings and mass-market elevators for residential
property, where the market is coming out of a slump.
In the midst of the market turmoil on Wednesday ThyssenKrupp said it
was increasing its stake in a joint elevators venture that caters
mainly for the Chinese market.
MANAGING THE MIX
As Chinese national champions like telecoms giant Huawei, trainmaker
CRRC and power generation equipment maker Shanghai Electric
have grown, foreign rivals have retreated to higher ground or left.
Denmark's Vestas is focusing on producing higher quality wind
turbines for the Chinese market after failing in a decade of
attempts to make inroads at the lower end, which is flush with
cheaper locally made turbines.
The chief executive of German wind turbine maker Senvion told
Reuters this week he had no plans to enter China, the world's
biggest market by new installations. "As a sales market, you will
have to look at other regions," he said.
Solar power, too - a key strategic industry for China - is a closed
shop for foreign suppliers, and in coal power generation, which
produces most of China's electricity, Chinese suppliers dominate the
market.
A rise in Chinese competition has sometimes come from unexpected
quarters.
Tate & Lyle is refocusing its sucralose artificial sweetener
business on customers that care about quality, safety and provenance
more than price after prices were hammered by a glut of cheaper
product from China.
Late last year, Tate & Lyle forecast sucralose prices would fall 25
percent year on year as it had to renegotiate supply contracts at
lower prices to protect share from Chinese rivals.
In July, it said it was "managing the mix between volume and margin
very, very carefully right now".
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Barclays analyst James Stettler said: "Telecoms, rail, power
generation and transmission are pretty much all Chinese. The big
question is now what happens in healthcare equipment."
TECHNOLOGY TRANSFER
Healthcare is a key area in which China wants to promote its
homegrown medical devices and create incentives for medical
institutions to use locally made products.
Beijing wants to reduce soaring healthcare costs while improving the
health of its 1.4 billion people.
The medical equipment devices market, worth an estimated 212 billion
yuan ($33 billion) in 2013, is dominated by foreign players such as
Siemens, General Electric, Philips and Toshiba.
"We see the market slowdown. Obviously, we also see there the
emergence of local competitors that nibble at the market share...
and I think that is what all major companies will have to reckon
with," Philips CEO Frans van Houten said last month.
Chinese providers like Mindray Medical International and China
Resources Wandong Medical Equipment Co. Ltd are mainly making their
presence felt in simpler imaging devices such as ultrasound machines
so far.
But with technology transfer thanks to joint ventures that most
foreign firms set up to produce in China, foreign suppliers cannot
hope to keep indefinitely their ownership of the market for high-end
computed tomography or magnetic resonance imaging.
Most foreign firms with significant Chinese operations have such
joint ventures: certain industries like automaking require them,
while other companies see JVs as a way to local market knowledge,
government connections or distribution channels.
Siemens Chief Executive Joe Kaeser described the dilemma last month,
explaining why Siemens continued to partner with Shanghai Electric
despite the Chinese company's having become more of a direct
competitor.
Shanghai Electric owns a 40 percent stake in Italian power
engineering group Ansaldo Energia, which is now seen as favorite to
buy assets being shed by Siemens' rival Alstom as part of a bigger
Alstom-GE deal.
Kaeser told skeptical analysts: "We continue with a very close
partnership with Shanghai Electric because the better technology you
offer the more welcome you are as a partner, especially in China."
(Additional reporting by Sabina Zawadzki in Copenhagen, Christoph
Steitz in Berlin, Martinne Geller and Tom Bergin in London, Jussi
Rosendahl in Helsinki and Helena Soderpalm in Stockholm; editing by
Susan Thomas)
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