Where Chinese Exports Are Gaining the Most Market Share

The US 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 secondtors 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.

Thank you for having me.

So, Trina, as I just said, so much of the conversation around Chinese companies going global centers on The US 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.

We actually looked through over 10 secondtors 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, it goes to some of the newer sectors, such as 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 ten years about half of them actually the export went to emerging markets. And in these markets the share gain and the reve

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?

That's where I think we got one of the biggest surprise 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

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?

That's correct. I wouldn't say that's happened to all the products, but we definitely see a number of products present themselves in the history that way.

And so then we think about the incumbents that are competing against these Chinese exports. Some of them have done a better job than others about hanging on to market share, as you just alluded to. What makes incumbents more competitive and able to do that, and what makes some of them less able to do it?