For years, Mr Cai has freely drawn on his extensive experience to help me understand the Chinese food sector. This evening, with his characteristic generosity, he had brought fine Australian red wine to our meeting in a Beijing restaurant.
“You were wrong to forecast a Chinese dairy industry recovery by May this year,” he was quick to tell me. “The West is overproducing and imports are driving down prices. This will be a tough year for dairy farmers in the West. The easy years of foreign companies selling overly expensive food products to China have passed.”
I asked him whether general consumer demand was strong. “Yes, but Western food companies still expect the China market to resemble their home markets. Our recent food crises have made us more sceptical and analytical, and the memory of famine haunts the leadership. As the Chinese economy becomes more integrated with the global one, the Government is looking for new ways to ensure that China is as secure as possible in any global crisis. It doesn’t have a clear idea of what crisis may occur, but the principle of self-sufficiency when it comes to food is as instinctive as it is strategic to the Party.
“Regulations will increasingly favour domestic producers as protectionism in China’s food sector increases. Even in areas where we are less efficient or cost-effective, such as the dairy industry, the Government will support producers.
He said it was also a matter of national pride, like prowess in sport. “Although China is useless at football, it is the predominant global sport and therefore we feel we must participate. We will improve at football and get better at farming and producing safer food.” He chuckled. “Well, at least we will get better at farming and producing safer food.
He went on. “Foreign food producers working closely with local partners will do very well despite the growing commercial nationalism. Long term, I doubt that any country will rival New Zealand in whole milk powder. Chinese consumers know that food safety regulations are poorly and arbitrarily applied, so that quality imported infant formula will always sell. But note that growing demand for fresher products will create an increasing challenge to imports.”
“Do some companies succeed due to national character or is it down to individual corporate culture?” I asked.
“Most large foreign firms tend to be arrogant in China and smaller companies less so. Despite the many exceptions in each culture, one can still generalise. New Zealanders and Australians are a bit like Americans – warm, friendly and open – but they can lack flexibility. They are not averse to risk and treat local employees well, but they expect Chinese consumers to immediately recognise the quality of their products because of where they come from. To an extent, there can be an insensitivity to consumer needs and aspirations.”
“Then whom can we learn from?”
“Nestlé is huge; it operates well as a Chinese business while maintaining European safety and management standards. It engages with officials at all levels of government and ensures it is perceived as contributing to local communities.
“Northern European countries, particularly Germany and Holland, tend to take a long-term view and demonstrate respect for China in simple ways. Last year in Berlin, our hosts served us Maotai [a premium Chinese vodka] at a function. It wasn’t necessary, but the gesture really touched us. Germans can be black-and-white at times, but they do focus on building long-term partnerships rather than on short-term gains.
“Market forces have transformed China for the better, but capitalists who only focus on short-term profits will always weaken their economies. This lack of vision is apparent in the global economy and is also a major weakness in many Chinese companies. Perhaps few of us in China understand capitalism, but if we concentrate on core social values and simple market forces, we can succeed.”
Source: Listener