Where Chinese Exports Are Gaining the Most Market Share

Allison Nathan (0:05)

The U.S.-China trade relationship gets most of the attention. But is that where the most consequential competition is taking place? And what does that mean for companies and investors? I'm Alison Nathan, and this is Goldman Sachs Exchanges.

My guest today, Trina Chen, co-head of Greater China Equity Research at Goldman Sachs, has studied 11 sectors and 40 Chinese and global companies to see where Chinese firms are gaining ground and what that means for competitors and investors. Trina, welcome to the program.

Trina Chen (0:39)

Thank you for having me.

Allison Nathan (0:40)

So, Trina, as I just said, so much of the conversation around Chinese companies going global centers on the U.S.-China relationship, but you actually did a lot of work and mapped out where Chinese companies are gaining share worldwide. What did the picture look like? And first, tell us a little bit about the analysis you did.

Trina Chen (0:59)

We actually looked through over 10 sectors across all the different industries. So these are very traditional ones, such as white goods, fridge and washer, and they could be EV. And all the way goes to some of the newer sectors, such as the surgical robots, power equipment, to even services sectors, such as express services. And what we found was a pretty clear, consistent picture in share gaining. But if you look in the details of all these products in the past five to 10 years, about half of them actually the export went to emerging markets. And in these markets, the share gain and the revenue growth has been very tremendous, and we're looking at aggregate revenue growth is probably 15 times of the local market organic growth. And this is where market share today of the Chinese product in emerging market has probably reached 24%.

And we see very similar trend in US and Europe, but maybe relative modest. And we're looking at 10 to 16% market share achieved in the ex-China market by these companies.

Allison Nathan (2:14)

So market share is gaining everywhere for Chinese exports, but most strikingly in the emerging markets. When we think about this growth in Chinese exports, we generally think that means falling prices. Does the data that you're looking at actually back that up?

Trina Chen (2:31)

That's where I think we got one of the biggest surprises in the study is when we look at the chart, we say, wow, this looks different.

Intuitively, I think we would be all associated with the Chinese product, with price deflation, price cut. But in reality, what the chart actually shows you, at the beginning of the entry, Chinese product typically come to a market with 30% on average discount to the incumbent local peers' price. But in the subsequent years, you actually see price rise over the many years post the initial entry.

The rise of price could be driven by pass on the cost inflation, it could be cyclical factors, but there's also better product, better prices.

So if you look at the relative price between Chinese price and their competitor in this market, the discount usually stays quite stable over the period of time. And for example, EV, I think everyone talk about EV, but if you compare same model, Chinese EV versus global, some of the brand names, the discount is around 20 percent and it's been very stable in the past three to four years. There is one exception I always want to mention that is RVC, which is robotic vacuum cleaner you use at home. And this product, when it comes to the US market, came at 40 percent discount. And today, it's 60 percent premium. Price tripled way faster than its competitor because it's keep innovating, have all the different functions. If you go to Amazon, you could actually see how impressive it could be. But that's one example of innovation also keeps price higher. So I think it's fair to say the enter of the Chinese product does not necessarily create additional pricing pressure for the many years post the initial entry. But there is a point. As competition carries on, at certain point, we will start to see revenues start coming of companies coming under stress and contraction of revenue or deceleration of growth. That's where we start to see price cut. And these price cut typically are initiated by companies who has been losing market share and trying to defend their market share in a very challenging situation and competition.

Allison Nathan (5:02)

So the perception that Chinese exports are gaining market share because they're cheaper, if I understand what you're saying correctly, is true at first, but actually less true over time. And again, if I heard you correctly, product quality ultimately leads a closing of the gap between the price of the Chinese export and the local product. Is that right?