Goldman Sachs Reports Investor Skepticism on Chinese Companies’ Overseas Expansion
- Goldman Sachs reveals investor skepticism towards Chinese firms expanding abroad amid domestic economic challenges.
- Automaker Geely plans to enter the Canadian market in 2024 as part of its international strategy.
- Chinese companies are expected to grow their overseas market share to 31% by 2035 while facing challenges from competition and geopolitics.
BEIJING — Equity investors are expressing skepticism regarding the rapid overseas expansion of Chinese companies, as highlighted in a recent analysis by Goldman Sachs. Trina Chen, co-head of Greater China equity research at Goldman Sachs Research, stated that the market is seeking “profitable expansions,” during a podcast published by the investment bank on Tuesday.
Many companies, particularly in the electric vehicle sector, are accelerating their international ventures due to sluggish consumer demand within China. Geely, the automaker, announced on Friday its plans to expand into the Canadian market next year.
Goldman Sachs projects that the overseas market share of Chinese companies could rise to 31% by 2035, up from approximately 18% currently. This forecast is based on an analysis of over 10 sectors, including express delivery, industrial robotics, and consumer appliances such as air conditioners.
Chinese firms often enjoy higher profit margins in international markets, enabling them to undercut local competitors on price. However, Chen emphasized that investors need reassurance that this global expansion will not devolve into “involution,” characterized by fierce competitive pricing that erodes profitability.
Involution describes the detrimental price competition that has plagued several sectors in China, a situation regulators have been attempting to mitigate in recent years. Chen indicated that the existing uncertainty means that Chinese companies’ opportunities for expansion are not adequately reflected in their stock valuations.
Moreover, she noted that investors are “ruthless” when incumbents lose market share, with a decline of just 10% to 15% in market position potentially resulting in a 50% to 80% decrease in market capitalization.
Interestingly, Chinese businesses are not solely targeting the U.S. and European markets. Goldman Sachs observed that much of the rapid growth is occurring in emerging markets, where these companies are focusing on regions with limited competition.
A recent report from Euromonitor highlighted that “Chinese brands are no longer simply market challengers,” suggesting a transformation into long-term competitors capable of “reshaping market dynamics” across regions such as Latin America.
News Courtesy of CNBC
