China-France Relations Gaining Momentum in 2018

January 23, 2018 Posted by China Briefing Reading Time: 6 minutes

By Vincent Bonhaume and Thibaut Minot

French President Emmanuel Macron’s visit to China this January ushered in a wave of optimism for China-France relations, as the two countries look to strengthen economic ties in 2018 and beyond. The president’s trip was aimed at boosting confidence and economic cooperation between China and France, with the ambitious plan for the French delegation to re-equalize the trade balance, which is currently unfavorable for France.

The Chinese market, the biggest in the world for many products and services, is attracting the attention of French multinationals even though access remains complicated for foreign companies. While encouraging French companies to come sell in China, Emmanuel Macron took advantage of his visit to lobby for fairer competition standards in this market.

Macron’s state visit to China has resulted in significant contract signings for major French groups such as Airbus and Areva, as well as new partnerships in the sectors of culture and art. Concrete results such as these demonstrate Macron’s ambition to better leverage Sino-French relations by adopting a more pragmatic and business-focused approach to diplomacy, and his desire to boost French exports through this strategic partnership.

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More trade reciprocity in 2017

China, pursuing its quest to become the world’s biggest economy, is now a major export market for many nations around the world. At present, trade between China and France remains measured. China currently accounts for 7.5 percent of French trade in terms of value, with a total of €75.3 billion worth of bilateral trade recorded between December 2016 and November 2017. While China is France’s second largest supplier after Germany, it is only the seventh largest market for French exports.

French Customs estimate that, between December 2016 and November 2017, France exported €25.5 billion worth of goods to China and imported €49.8 billion worth of Chinese products. As a result, the French side recorded a deficit of €24.3 billion over the period, although the gap decreased last year as the trade deficit amounted to €28.6 billion in 2016. In addition, the increase in the value of French exports to China (by €4 billion) and imports of Chinese products into France (by €2.7 billion) over the past 12 months indicate an encouraging increase in trade between the two countries.

The portfolio of French industries showing positive results in China in 2017 remained relatively comparable to previous years. Aerospace construction products (34 percent of the value of France’s exports to China), beverages (6.9 percent), machinery and equipment for general use (6.2 percent), and pharmaceuticals (5.6 percent), to name a few, still enjoy favorable export conditions with China. With respect to imports from China, France maintained its appetite for clothing (12.4 percent of the value of imports), communications equipment (12.3 percent), computers and peripheral equipment (10.6 percent), and electrical equipment (7.1 percent).

China is a sizeable market for French companies, as demonstrated by the €6 billion worth of French FDI in China in 2016. Moreover, several French industries record increases in turnover through exports to China, such as luxury products, food and beverage, high-tech goods, and art. French companies recorded nearly €74 billion in turnover in China in 2015, and more than 1,600 French firms were established there that year. In France, there are currently no less than 700 subsidiaries of Chinese and Hong Kong companies, employing around 45,000 people.

While many French companies continue to sell well in China via brick and mortar stores, 2017 reinforced the necessity of having an online sales strategy, especially for the sale of consumer goods. Online sales continue to skyrocket, with international brands eager to trade via the major e-commerce platforms such as Tmall and JD.com.

This also stands for French companies, especially in the cosmetics, luxury goods, and food and beverage industries, and many French companies are signing major contracts with online retailers as a result. Business France, a French governmental agency promoting trade, signed an agreement with JD.com on January 9 for the sale of €2 billion worth of French products on the Chinese platform within two years. For French SMEs, the cross-border e-commerce model, which allows brands to sell to Chinese consumers via the Internet without necessarily establishing a subsidiary in China, offers new lower-cost and lower-risk market entry opportunities.

Forecast for 2018

The election in May 2017 of a president favorable to free trade has initiated a program of reforms aimed at strengthening France’s international competitiveness. Accordingly, Macron and his government intend to revive the attractiveness of France as a business destination, and the fact that China was the first choice for a state visit in 2018 is no coincidence. The visit of the French president, considered as a success by numerous observers, has quite possibly launched a positive dynamic in the economic relations between the two countries in 2018.

The French food and beverage sector will continue to perform well in China this year, with the loosening of the long-standing embargo on French beef in China likely to greatly contribute. The sector benefits from strong governmental support, as illustrated by the visit to China of the Minister of Agriculture Stéphane Travert at the start of the year, who seeks to boost exports of beef, pork, and poultry to China. Also worth noting is the ambition to encourage the export of animal parts less consumed in Europe but very popular in China, such as pork and chicken feet.

Likewise, the export to China of French services continues to grow, as illustrated by the success of the Orpéa Group and their recent launch of various retirement homes in China. The culture and contemporary art industries are also growing, and benefit from numerous cooperative agreements in place between the two countries.

Finally, the fight against climate change offers many opportunities for French entrepreneurs in China, in sectors such as energy, waste treatment, and urban planning, among others. Nuclear power, of which the development alongside renewable energies is favorably seen both in France and China, is a particularly promising French industry in China. The AREVA-CNNC framework agreement dating from February 2017, and the industrial commissioning of the first EPR reactor in Taishan planned for February 2018, illustrate this well.

The various contracts signed during the presidential visit will mainly benefit large French groups, although discussions were also held on a €1 billion investment fund to invest in SMEs doing business in the respective countries, although few details on this project have been announced.

The agreements made during Macron’s visit augur a positive period for trade between France and China in 2018. Time will tell whether the greater reciprocity requested by Macron during his visit in China will materialize and will further strengthen the quantity and quality of bilateral trade flows between the two nations.

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