Where Chinese Exports Are Gaining the Most Market Share

Trina Chen · Goldman Sachs

Chinese exporters have reached about 24% share in emerging markets and 10-16% in the US and Europe.

Across 11 sectors and about 40 Chinese and global companies, Chen's team found that roughly half of the past five to ten years' exports from these companies went to emerging markets. There, aggregated revenue growth is about 15 times local organic market growth, and Chinese products now hold about 24% share. The same trend appears in the US and Europe but is more modest, at 10-16% share in ex-China markets.

“the share gain and the revenue growth has been very tremendous and we're looking at aggregated revenue growth is probably 15 times of the local market organic growth... over the Chinese product in emerging market has probably reached 24%.”at 1:42

Trina Chen · Goldman Sachs

Chinese exports enter at about 30% discounts, but prices then rise, so export growth isn't driving deflation.

Chen's team tested the common view that cheap Chinese goods cause falling prices. Chinese products typically enter a market at about a 30% average discount to incumbent local peers, but prices then rise over the years after entry. Drivers include cost pass-through, cyclical factors and better products. The relative discount then stays fairly stable. Price cuts come later, when a company losing share and facing revenue contraction cuts prices to defend that share.

“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.”at 2:51

Trina Chen · Goldman Sachs

Incumbents ceding low-end and peripheral segments hand Chinese entrants a beachhead to move upmarket.

Drawing on Christensen's disruptive innovation theory, Chen says Chinese firms often enter underserved segments that incumbents have under-resourced. Global incumbents often dismiss these segments as commodity markets and focus on their most profitable customers. That retreat is deceptive and delays strategic responses. It gives competitors a beachhead from which to move up into higher-value markets.

“if you see companies [cede] the peripheral market or the low end segment they essentially [give] the beachhead to the competitors”at 10:30

Trina Chen · Goldman Sachs

Chinese EVs sell about 20% below comparable global brands, a gap stable for three to four years.

Comparing same-model Chinese EVs with global brand names, Chen finds a discount of about 20% that has held steady over the past three to four years. She contrasts this with robotic vacuum cleaners, where Chinese products entered the US at a 40% discount and now sell at a 60% premium because of continuous innovation and added functions.

“if you compare same model, Chinese EV versus global, some of the brand names, The discount is around 20% and it's been very stable in the past three to four years.”at 3:35

Trina Chen · Goldman Sachs

Companies losing 10-15% market share see market caps fall 50-80%, a ruthless market penalty.

Chen's team looked at market-cap responses to changes in market share and revenue. Markets have not hesitated to punish companies losing share. A 10-15% loss of market share or top-line contraction has been followed by market-cap declines of 50%, 70% or 80%, with multiples and earnings falling together.

“the penalties, actually I would describe it as ruthless. For 10 to 15% market share loss or top line contraction, the market cap could shrink by 50%, 70, 80%.”at 11:31

Trina Chen · Goldman Sachs

Trade restrictions on Chinese companies slow their progress but won't change the long-run outcome.

Chen calls trade restrictions and market-access hurdles a speed bump. They can change the trajectory of Chinese companies' expansion, but they don't change the outcome in the long run because the competitor is already present. Practically, firms should avoid sensitive products and sectors that create friction, such as autos. Companies with strong market positions and no substitutes can still navigate this environment.

“I view these restrictions or hurdles as more of a speed bump. So they could change trajectory but they don't change the outcome in the long run because the competitor is here.”at 13:50

Trina Chen · Goldman Sachs

Chinese transformers are unlikely to enter US or European main grids because of security concerns.

Chen relays the view of her power equipment analyst. Chinese transformers have gained share in other markets, but the analyst is very skeptical they would ever reach the main grids in the US and Europe, for security reasons. This shows that some sectors face access limits beyond price and quality.

“she would be very skeptical that Chinese transformer would ever go to the main grid of power grid in US and Europe for security reason.”at 14:18