Goldman says investors are looking for 'profitable' Chinese business growth overseas
Sluggish consumer demand in China has pushed many companies, such as electric car brands, to accelerate plans for entering other countries.
Key points
- Goldman Sachs says equity investors doubt Chinese firms' overseas expansion will be profitable.
- Chinese companies' overseas market share could reach 31% by 2035, up from about 18%.
- Geely announced plans to enter Canada next year as Chinese firms expand abroad.
Equity investors are skeptical about Chinese companies' rapid expansion overseas, according to Goldman Sachs. Trina Chen, co-head of Greater China equity research at Goldman Sachs Research, said the market is focused on profitable growth abroad.
Chen made the comments on a podcast the investment bank published Tuesday. Her team predicted in a Sept. 14 report that Chinese companies' overseas market share will likely reach 31% by 2035, up from around 18%.
Why companies are expanding
Sluggish consumer demand in China has pushed many companies, including electric car brands, to speed up plans to enter other countries. Automaker Geely announced Friday that it plans to enter Canada next year.
Chinese businesses often find higher profit margins abroad than at home, which lets them charge lower prices than local competitors. Goldman Sachs noted some of the fastest growth is in emerging markets, where companies also target areas underserved by rivals.
market wants to look for profitable expansions
— Trina Chen
What investors want
Chen said investors need to be convinced the global expansion does not turn into involution, where competition destroys prices. She said geopolitics and market access restrictions also weigh on stock performance.
That uncertainty means Chinese companies have very little of their global expansion opportunity priced into their stocks, Chen said. She added that investors are ruthless when incumbent companies lose market share, noting a 10% to 15% loss could shrink market capitalization by 50% to 80%.
