Portuguese trade in China – barely scratching the surface
Trade between China and Portugal was worth around €2Bn in 2018 but with barely 30 Portuguese companies dedicated to sustained commerce with China and a lack of Government strategy, the huge Chinese market remains largely untapped says Sérgio Martins Aves of the Portuguese Chinese Chamber of Commerce.
In the year in which Portugal and China commemorate the 40th anniversary of bi-lateral trade relations and a staggering estimated €9Bn of Direct-Foreign Investment from China in Portugal over the past five years, on the surface it looks like Portuguese trade in China and Chinese trade in Portugal must be booming. It isn’t.
Most of the Chinese FDI has been from Chinese State-sponsored companies like China Three Gorges, for example, which has a 25% in Portugal’s electrical energy giant EDP. But only around 30 private Portuguese companies at best have offices in China while some 7,000 SMEs do business on an irregular basis in the country.
“Trade relations are a lot better than they were, but have a lot more room for growth when compared with the bilateral trade China has with the majority of the other European countries” admits Sérgio Alves Martins.
In fact, the balance of trade is more in favour of China which is not always the case in Europe. For example Ireland has a positive trade balance with China.
Commercial exchanges between Portugal and China increased 23.5% in 2016, largely on the back of the sale of 21.35% of EDP (Energias de Portugal) in December 2011 to China Three Gorges for €2.69Bn.
But aside from the big-ticket Chinese deals from state-sponsored companies, Portugal represented a 0.19% overseas trade share for China with a percentage value of just 0.1% according to the latest data from AICEP dating 2016-2017.
And while Portuguese exports of goods and services to China increased 7.1% in 2013 and 10.4% in 2014, they actually fall 5.2% and 8.5% respectively in 2015 and 2016, while the total value of Portuguese exports to China have struggled to reach the €1Bn benchmark, averaging around €860-900 million per annum between 2014 and 2016.
A problem of branding
Martins says that one of the reasons Portugal doesn’t achieve more positive trade balances has to do with marketing and branding.
“We don’t have large multinational companies as many other countries do. We do have one big brand, but it’s not from a company – He’s Cristiano Ronaldo which Portugal uses to sell tourism in China!” he says.
“The majority of our European competitors also struggle to get Chinese FDI and widen the scope of their exports to China. Countries like Spain, France and Italy are helped by their knowledge of the country but struggle nevertheless, while large developed economies like the UK and Germany don’t have to put in one-third of the efforts that a small country like Portugal has to,” Martins adds.
AICEP’s lack of investment
Sérgio Alves Martins points out that Portugal simply doesn’t have a “well-oiled machine” to run and promote an overseas economic policy.
Portugal’s overseas trade and investment bureau AICEP, which has been in existence in its current form for over 10 years is, in Martins view “very dysfunctional”.
“You have three or four times more commercial delegates from AICEP in Europe than in China. Europe is a market with no boundaries for Portugal, we don’t have tariffs since we are in a common market, yet we invest a lot more in tiny European markets where it is easy to adapt to them, penetrate them and sell there. China, however, is more difficult and would demand more support from the public side. Support we just don’t get,” he laments.
The General Secretary of the Chinese-Portuguese Chamber of Commerce points out that AICEP has just three people on the ground in China compared to 20 in Madrid.
“Evidently we need a strong team to support our business in Spain. Spain is our main market in Europe. But it’s easier doing business in Spain; we know the people, the culture, the business mindset and the legal framework.
“And it’s much easier for a Portuguese SME to do business in Europe and the Western hemisphere than in China, so it stands to reason that our companies need a lot more support, research and a comprehensive trading approach to the Asian and the Chinese markets and other regions of the world where we barely exist” admits Martins.
Martins agrees that Portugal does not have the means or resources to have specialised institutions focusing on large emerging markets like some of the larger European countries have.
Nevertheless, Portugal, he says, is “lagging behind” when compared to smaller countries like Holland, Hungary, Slovenia, Ireland and the Czech Republic.
“It’s evident that we need a more sophisticated approach on the overseas trade front. We are not capitalising on many overseas markets where we could have been much more successful in exploring them than we have been” he stresses, adding that the South East Asian countries “barely exist” for Portugal and didn’t exist at all as markets until some years ago.
Martins says there are barely 20-30 Portuguese companies regularly doing business on mainland China with an office in that country.
“I am not counting the many small companies that might do some inconsistent business in China (5-7,000), but even counting those, I’d be hard pressed to find more than 100 with a presence on the ground not including Macau,” he says.
Challenges? What challenges?
Sérgio Alves Martins feels that the challenges of doing business in China are not that much different from doing business in many other countries, and certainly not unsurmountable.
“I’m not saying there aren’t some difficulties, but if you make it there and work at it there are huge opportunities as many companies have discovered for over two or three decades now.”
Martins does not believe that Portugal has some “special difficulty” in penetrating the Chinese market.
“In terms of FDI Portugal simply doesn’t have ‘national champions’ so to speak in the Chinese market” Martins explains.
“There was a time when that opportunity was in front of us; but Portugal didn’t have the skills to manage it,” he says pointing to a big Portuguese multinational cement manufacturer Cimpor (now in Turkish hands) which 15 years ago had three main plants in China”, he says.
“Portugal Telecom too was starting to make deals in China to supply software and communications services to Chinese State Owned Enterprises (SOEs)”, Martins adds.
There were Portuguese banks that had been quiet rooted in Macau (Banco Espírito Santo was one) and Caixa Geral de Depósitos and HSBC all issued money in both Hong Kong and Macau.
“The truth is that we are just not a particularly business-orientated people to the same extent as the British are. It’s as simple as that!” concludes Martins.