Goldman Sachs sees global success driving China's economic shift

Despite post-pandemic headwinds at home, Chinese companies have been reporting strong profits overseas, and this wave of globalization is emerging as a new growth engine that could reshape the country's economic structure, Goldman Sachs said in a recent report.

In an October report titled "China Strategy: Journey to the World", Goldman Sachs urged investors to focus on Chinese listed companies that are growing their offshore revenues, arguing that a competitive renminbi, China's entrenched position in global supply chains and the price-quality edge of Chinese products will continue to support the global expansion of leading firms. The investment bank frames this as a structural, rather than a cyclical, shift.

Goldman Sachs said the long-held view of Chinese exporters as low-cost, low-value suppliers to consumers in developed economies is outdated. Chinese companies are exporting more to emerging markets as final destinations and have steadily gained share in higher-end manufacturing. The report added that China is now exporting services, intellectual property and culture, signaling a shift from purely price-led competition toward quality, innovation and brand-building.

China's export profile has moved up the value chain, Goldman Sachs analysts said. The products now range from toys and furniture to electric vehicles, lithium-ion batteries and solar panels. While quality has risen, Chinese goods typically retain a price advantage of 15 percent to 60 percent versus their global peers.

In markets such as the United States, consumers have become increasingly familiar with newer Chinese brands including Luckin Coffee and Temu. Chinese companies are exporting not only physical products, but also digital business models built around direct-to-consumer platforms, social commerce and data-driven logistics.

Outbound direct investment has increased in recent years, particularly in emerging markets and economies involved in the Belt and Road Initiative. Goldman Sachs said that locating capacity closer to end markets and diversifying sourcing enhance resilience to tariffs, trade frictions and policy uncertainty.

The investment bank's analysis shows that the share of overseas revenue among China's listed companies has risen from 14 percent in 2018 to about 16 percent now. Though that remains far below the roughly 50 percent average for developed-market firms, Goldman Sachs expects the share to keep rising by around 0.6 percentage point a year, and added that growth momentum has persisted despite tariff regimes in some destinations.

Goldman Sachs identified 25 leading companies across 12 industries. These companies generated an average of around 34 percent of their revenue overseas. Among them are Alibaba, BYD and PDD Holdings, whose stock prices have surged by an average of 56 percent since the start of 2024 and 39 percent year-to-date, according to the report.

The investment bank argued that as profits from offshore subsidiaries flow back, China's gross national product — the value of products and services produced by the citizens of a country both domestically and internationally, but not including income earned by foreign residents — could eventually outstrip gross domestic product. It likened the potential shift to Japan's trajectory after its asset price bubble in the 1990s, suggesting that earnings for Chinese corporations may rely less on domestic demand and more on global consumption trends over time.

Structural shifts in trade underpin the corporate push offshore. China's share of global manufacturing value added climbed from 11 percent in 2001 to 33 percent in 2024, supporting an 11 percent compound annual GDP growth rate over the period and lifting the country to the world's second-largest economy. Export destinations have shifted from developed markets toward emerging economies.

Composition has also tilted toward advanced-technology goods. Over the past 15 years, the global export share of traditional labor-intensive products such as toys, textiles and furniture fell by about 10 percentage points, while machinery and electronics drove the gains from 2010 to 2020. In recent years, electrical equipment and the "new trio" — electric vehicles, lithium-ion batteries and solar cells — have accelerated as engines of export growth.

Beyond merchandise, China has broadened its footprint by stepping up outbound investment, particularly in those economies involved in the BRI, evolving from a single-product exporter to a diversified operator offering services, technology and intellectual property. Goldman Sachs identifies several factors underpinning the globalization drive. A competitive renminbi is one such factor.

On a trade-weighted basis, the currency remains highly competitive and is likely to be a tailwind for exporters in the coming quarters, the investment bank said. Goldman's research suggested that the renminbi remains undervalued, providing a cost advantage for firms expanding abroad.

Another pillar is China's depth across supply chains. From raw materials to advanced manufacturing capacity, China is integral to any reconfiguration of global production networks. Cost advantages allow companies to price major manufactured goods 15 to 60 percent below global competitors, while scaling up quality and reliability.

Chinese economists and industry experts said resilience and creativity are driving the outward push. Guan Qingyou, an economist and president of the Rushi Financial Research Institute, said Chinese companies have the capability, resilience and ingenuity to deliver a new round of high-quality globalization. Free trade and globalization will not end but will change, he said, adding that current trade disputes cannot halt China's move toward institutional opening-up.

Charles Onunaiju, director of Nigeria's China Research Center, called the BRI an important platform for global cooperation that has delivered tangible results from infrastructure construction to improvements in public services, creating opportunities for developing countries to deepen cooperation and pursue shared development.

In 2024, China remained the world's largest trader in goods for the eighth consecutive year, and services trade topped $1 trillion for the first time. From coffee machines and robotic vacuum cleaners to electric vehicles and industrial robots, exports increasingly embody higher technology content. Companies such as DeepSeek have lowered barriers to technology adoption globally by offering high performance at lower cost, and advances in artificial intelligence, quantum technology and cloud computing are creating new paradigms for services trade. "Chinese intelligent manufacturing" and "Chinese innovation" are refreshing the global perception of "Made in China".

China has expanded platforms for opening-up, hosting the China International Import Expo, the China International Fair for Trade in Services, and the China International Supply Chain Expo, said Serik Korzhumbayev, editor-in-chief of Kazakhstan Industry Daily. He noted these events provide channels for product showcases, resource matching, deal-making and industrial linkages.

"China is proactively sharing development opportunities with the world, and its matrix of national expos is expanding. The 'window effect' and 'spillover effect' are getting stronger," he said. "China is committed to high-level opening-up, benefiting the world as it develops. Consolidating and strengthening industrial and supply chain cooperation is a shared expectation globally."

Analysts also noted that corporate globalization interacts with domestic policy priorities. On the one hand, the Chinese government has signaled support for high-quality opening-up, deeper participation in global value chains, and steady improvements in the business environment for foreign and domestic firms. On the other hand, overseas expansion can complement domestic rebalancing by diversifying earnings sources and hedging cyclicality in local demand, according to market strategists.

Goldman Sachs expects that as overseas operations scale up, repatriated cash flow and profits will strengthen balance sheets, support investment at home and abroad, and contribute to a gradual shift in national income measures.

For global buyers, the wider presence of Chinese companies means broader choice, faster adoption of new technologies and lower total cost of ownership. For China, the report pointed out that the shift signals a maturing industrial base, deeper integration into global value chains, and a possible reweighting toward GNP as overseas profits grow.

renqi@chinadaily.com.cn