As two leading government bodies convene in Beijing this week for a key event in the Chinese legislative calendar, policymakers are grappling with an expanding array of tests to the global economy, presenting challenges to domestic small and medium-sized enterprises (SMEs) seeking to expand their operations overseas.
The “Two Sessions” (两会Liǎnghuì), a term referring to the annual meetings of the National People’s Congress and the Chinese People’s Political Consultative Conference, are generally used as an opportunity for officials to unveil economic, political and social goals for the coming year. With the sudden outbreak of war in Ukraine, jammed supply chains, and effects of the continuing zero-Covid policy in China, this weekend saw the announcement of a GDP growth goal of 5.5% – the lowest in three decades.
Chinese exports have been booming lately. Last year, the country logged its greatest trade surplus in history, up 26% year-on-year at $676 billion. Much of this growth has been driven by the activities of domestic SMEs, which, according to a 2020 report by the OECD, contributed 68% of the country’s total exports in 2018.
However, analysts sense that this success may soon come to an end. China’s Minister of Commerce Wang Wentao acknowledged such concerns at a press conference last week, saying that “this year, pressure on foreign trade will be huge and the situation will be very severe.” Wang also expressed that the rising cost of raw materials and a labor shortage may affect the profitability of Chinese SMEs engaged in foreign trade, as well as their confidence in receiving orders from abroad.
One Shanghai-based company is aiming to allay such fears. Founded in 2017 by six former employees of Ant Group, fintech startup XTransfer specializes in streamlining cross-border transactions for Chinese SMEs.
When asked by Pandaily about the hurdles faced by smaller firms in the country when attempting to expand their services and operations overseas, XTransfer said “the biggest stumbling block for cross-border trade is cross-border payment.”
“Their plight is exacerbated by banks’ reluctance to offer services due to the high cost of anti-money laundering risk management and uncertain profits,” stated an XTransfer representative.
Whereas China’s major companies – including the group of vast state-owned enterprises – possess the financial resources and know-how required to engage in foreign trade, SMEs often lack both.
XTransfer charges customers 0.4% for each transaction it facilitates, compared to the 2% or 3% charged by traditional banks. The company claims it “uses technology as a bridge to link large financial institutions and SMEs around the world, allowing them to enjoy the same level of cross-border financial services as large multinational corporations.”
After it turned profitable in 2019, XTransfer earned unicorn status when it completed round-D financing in September of last year, bringing in $138 million and valuing the company at over $1 billion.
Pandaily asked the firm about rising concerns in China regarding 2022 exports, including the comments made recently by the Minister of Commerce, to which a representative responded: “China’s foreign trade and exports leading index showed a high level and stable trend in 2021, with a year-on-year increase of 21%, demonstrating the strong growth momentum of SMEs engaged in foreign trade. It is expected that in 2022, the trend of China’s foreign trade exports will continue to improve steadily and will reach a new height in the context of gradually controlling the pandemic and restoration of the global trade order.”
Offering a potential boost to Chinese SMEs seeking to pursue business opportunities abroad is the Regional Comprehensive Economic Partnership (RCEP), which came into effect on January 1. The deal was signed in November of 2020 by a group of 15 nations in the Asia-Pacific region that together account for roughly 30% of the global population and 30% of the world’s total GDP.
Member countries of the RCEP, which aims to reduce tariffs, have already become key markets for Chinese SMEs engaged in foreign trade. A recent report jointly issued by XTransfer and the China Council for the Promotion of International Trade claims that such firms saw a 20.7% annual rise in exports to countries included in the deal – even before it came into force.
Regarding the opportunities presented by the trade pact, XTransfer told Pandaily that the RCEP will “release unprecedented energy,” benefiting both the company itself, as well as the business performance of Chinese SMEs in the year ahead.