The Internationalisation Monitor describes trends in internationalisation and the consequences thereof for the Dutch economy and society. It is published quarterly as part of the Globalisation programme at Statistics Netherlands (CBS), which is commissioned by the Dutch Ministry of Foreign Affairs. In this edition of the Internationalisation Monitor, we begin by describing how the Chinese export market and economy have evolved, how it is performing economically and what the effects of the coronavirus have been on China’s economy and exports. Furthermore, we focus on economic relations between China and the Netherlands with respect to trade and investments, export-induced earnings, the characteristics of Chinese employees and students in the Netherlands, and the characteristics of companies using policy instruments to operate on the Chinese market.
China is the Netherlands’ largest trading partner in Asia, accounting for 12.8 bn euros in goods exports from and 43 bn euros in goods imports into the Netherlands. China’s economic emergence and integration into global value chains have been predominantly favourable for the growth of the global economy and have had positive effects on the Dutch economy. The fast-growing domestic market, the large R&D budgets, the abundance of skilled labour and the high-quality knowledge infrastructure in China create many opportunities for both large and small Dutch entrepreneurs.
Listed below are some of the main findings presented in this edition:
Chapter 1: Economic profile of China
- Due to economic reforms and the creation of Special Economic Zones, the Chinese economy grew at a rapid rate during the 1980s and 1990s. The driving forces were inward direct investments, exports and low wages.
- From 2010 onwards, this Chinese growth model was stalled somewhat by the difficulties of a further increase in productivity, a decrease in labour supply and an increase in wages.
- In a bid to achieve its goal of becoming the largest economy worldwide, China introduced a new growth policy, consisting of investments in knowledge and innovation as well as outward foreign direct investments. The Belt and Road Initiative is part of these outward direct investments.
- In 2018, China was the second largest economy in the world; the largest exporter of goods; 5th with respect to the export of services, 3rd in terms of outward direct investments, 5th in terms of inward direct investments and 14th in terms of R&D expenditure.
- The GDP per capita in the Netherlands is more than five times that of China. Between the various Chinese regions differences are seen in GDP per capita. The wealthiest regions are situated along the east coast, aside from the Beijing capital region in the north.
- The coronavirus pandemic caused an enormous shock to the economy. In the first quarter of 2020 China’s GDP fell by 6.8% and exports plummeted by 13.3%; unemployment rose from 5.2% in December 2019 to 6.2% in February 2020. The largest drop in exports was in clothing, toys and furniture. Almost all Chinese regions exported less, except for Beijing, Jiangxi and Hainan. A substantial drop was recorded in exports to eight of the ten most important destinations for China in the first quarter of 2020; only exports to Vietnam and Taiwan increased slightly.
- In April 2020, the first signs of recovery appeared. Exports grew by 3.5% that month, compared to a decline in exports in the previous three months while unemployment fell to 6.0%.
- It is uncertain whether this recovery will persist, because China is interwoven with global value chains, and downturns in other major export markets could diminish demand for Chinese exports.
Chapter 2: Trends in trade and investments between China and the Netherlands
- China is an important trade partner for the Netherlands. It is the 3rd largest foreign supplier of goods to the Netherlands and the 7th largest destination for Dutch domestically produced goods exports.
- In 2019, almost 79 bn euros in Dutch goods imports came from China, half of which was not imported by Dutch companies and left the Netherlands again in the form of transit goods (mainly to other countries in Europe). 29 bn euros worth of Chinese goods imported by Dutch companies had a direct destination abroad in the form of re-exports, while 14 bn euros in Chinese imported goods entered the Dutch market and were sold to Dutch consumers or processed by Dutch factories.
- The Netherlands mainly imports machines and transport equipment – such as consumer electronics, parts for Dutch production and assembly processes – and various manufactured goods – such as furniture, toys and clothing from China.
- From a Chinese perspective, the Netherlands is more important as a buyer of their goods than as a goods supplier. The Netherlands is the 8th most important export destination for this country, while it is only in 35th place for goods imports.
- The trade in goods between the Netherlands and China is unevenly distributed over the various Chinese regions. Of all Chinese regions, the provinces of Jiangsu and Guangdong export the largest volume of goods to the Netherlands based on export value. These two provinces, located on the east coast of China, each hold a share of more than 20% in goods exports to the Netherlands.
- Hong Kong is an important intermediary between China and the rest of the world; the vast majority of exports from Hong Kong to the Netherlands consist of re-exports. Nearly 88% of those re-exported goods come from mainland China. 32% of Hong Kong’s goods imports from the Netherlands are re-exported to mainland China.
- In 2019, Chinese companies (not including Special Purpose Vehicles) invested 1 bn euros in the Netherlands, which was only a fraction of total inward FDI in the Netherlands (1,472 bn euros).
- 3.5% of all foreign multinationals in the Dutch business economy are Chinese-owned. Together they account for 1% of all employment at foreign multinationals.
Chapter 3: The Netherlands and China in global value chains
- In 2018, the value added generated by the Dutch economy as a result of goods and services exports to China stood at around 5.6 bn euros, accounting for 0.7% of the Dutch gross domestic product. This makes China the 9th largest export partner of the Netherlands in terms of export revenues, even though it is the 12th most important export partner in terms of gross export value (goods and services combined).
- Most of the revenue from exports to China is generated by exports of Dutch domestically produced goods (4.1 bn euros), followed by exports of services (1.1 bn euros) and earnings from re-exports (0.4 bn euros).
- In 2018, a large share of the earnings from exports to China was generated through wholesale trade, followed by the machinery industry and the food industry.
- In 2018, nearly 51 thousand full-time equivalent jobs (FTEs) were related to export activities from the Netherlands to China, which took up 0.7% of total employment in the Netherlands.
- Besides direct exports to China, the Netherlands also earns from exports to China via other trading partners, in which Dutch intermediate goods and supporting services are further processed and used in the exports of these other trading partners, with China as the final destination. According to OECD figures, in 2016 the Netherlands earned 5.5 bn euros from indirect exports to China. In the same year, the Netherlands earned 6.0 bn euros from direct exports to China.
- The Netherlands thus earned a total of approximately 11.5 bn euros in direct and indirect exports to China in 2016. This is triple the value earned in 2005, when these earnings amounted to less than 4 bn euros.
- 9.7 bn euros out of total Dutch export earnings from trade with China are due to final consumption expenditure in China. The remainder of the export earnings results from intermediate goods and supporting services that are used as inputs in the production of Chinese exports, in which US, Japanese and Indonesian consumers and investors play an important role.
- In 2016, China earned 11.9 bn euros from exports to the Netherlands. This is 451 million euros more than the 11.5 bn euros that the Netherlands earned from exports to China in that same year. China earned 9.0 bn euros from direct exports to the Netherlands and 3.0 bn euros from indirect exports. China also tripled its export earnings over the period 2005–2016.
- Despite the fact that a large part of Chinese exports do not have the Netherlands as their final destination, in 2016 the bulk of China’s earnings was derived from goods and services exports that were destined for the Dutch domestic market. About 9 bn of the 11.9 bn euros that China earned in total from exports to the Netherlands is related to consumption or investments in the Netherlands. The other 3 bn euros – one-quarter of the total export earnings – is related to consumption of Chinese exports elsewhere in the world, in particular other European countries.
Chapter 4: Chinese employees and students in the Netherlands
- In 2019 around half of all Chinese nationals residing in the Netherlands lived in either Noord-Holland or Zuid-Holland.
- In 2018 roughly 43% of Chinese employees were working in the economic area ‘Accommodation and Food Services Activities’. This is far more than those employed in any other economic area, as the second largest group (‘Wholesale and Retail Trade; Repair of Motor Vehicles and Motorcycles’) comprised just 9.2%.
- Of all Chinese employees in the Netherlands in 2018, 48% fell in the age category 26–35 years. Second largest was the age category 36–45 years at almost 28%.
- The average hourly wage for a Chinese employee in the Netherlands was roughly 19 euros per hour (gross) in 2018. That is less than the average wage for a representative Dutch and Indian group of workers, who earned roughly 23 and 27 euros per hour, respectively. The median hourly wage for Chinese employees was roughly 15 euros per hour, compared to 20 and 23 euros per hour for Dutch and Indian employees, respectively.
- In 2018, around 58% of the Chinese employees in the Netherlands were male. For Dutch and Indian employees this share was roughly 52% and 75%, respectively. Female Chinese employees earned 20 euros per hour, which is 2 euros higher than male Chinese employees. For Dutch and Indian employees this is the other way around, with male employees earning a higher average hourly wage than female employees.
- Most income differences between Chinese and Dutch and Indian employees can be linked to the economic area they work in, as Chinese employees are far more likely to be employed in the sector ‘Accommodation and Food Services Activities’, which has far lower hourly wages compared to other common sectors for Chinese, Indian and Dutch employees.
- Higher education is one of the most popular sectors for Chinese people working in the Netherlands. This is to a large extent driven by the large number of Chinese PhDs employed by Dutch universities. In 2018 there were around 400 Chinese PhDs in the Netherlands, around one-tenth of all international PhDs working at Dutch universities that year. Chinese people working in higher education are relatively young (the average age is 31 years old), men are often overrepresented in technical universities.
- In the academic year 2018/’19, there were 4,475 Chinese students in higher education in the Netherlands (1,072 in universities of applied sciences (HBO) and 3,403 in research universities). This put China in 3rd place according to the country of origin of international students in the Netherlands. Interestingly, the number of Chinese students in bachelor programs decreased between 2013/’14 and 2018/’19 while the number of master students increased during this period.
- Similar to the Chinese people working in Dutch higher education, students from China are mainly concentrated in technical universities. ‘Technical studies, industry and engineering’ and ‘Law, administration, trade and business services’ are the most popular areas of study among Chinese students enrolled in Dutch research universities. ‘Law, administration, trade and business services’ is also the most popular among Chinese HBO students.
- Many Chinese PhDs and Chinese students stay on in the Netherlands after graduating. Around 43% of Chinese PhDs are still in the Netherlands ten years after the end of their PhD contract. This is around 10 percentage points higher than the stay rate of the average international PhD student in the Netherlands. Over 60% of Chinese bachelor graduates and around half of Chinese master graduates still live in the Netherlands three years after receiving their diploma. Most graduates who stayed are employed. On average these Chinese graduates receive lower earnings than Dutch graduates from the same cohort, and this difference is especially large for master graduates (Chinese master graduates earn 21.20 euros per hour whereas Dutch master graduates earn 23.70 euros per hour).
Chapter 5: Policy instruments to stimulate trade with China
- The instruments most frequently used by firms to reach the Chinese market are Inquiry on trade, technology or investment (44.7%), Matchmaking Facility (11.9%) and Missions (7.9%).
- Four out of five instrument users who try to reach China are independent small and medium-sized enterprises (SMEs). Half of the instrument users employ fewer than 10 people.
- The instrument users targeting China mostly belong to the industrial sector, the wholesale, retail and hospitality sector, and the business services sector.
- The industrial sector and demographic characteristics (company age and firm size) of the firms who use these policy instruments are not very different between the firms that try to reach China and those that target other countries.
- Roughly 40% of the firms that deployed an instrument in order to reach the Chinese market were already conducting trade (exports and/or imports) with China in the year of instrument use. The share of exporters to China increased slightly in the following two years, while the share of importers decreased.
- 5% of the exporting instrument users derive more than one-quarter of their turnover from China.
- More than 8% of the firms that used an instrument in order to reach the Chinese market derived more than half of their export earnings from exports to China in the year in which they deployed the instrument.
- The average value of exports to China by firms that used an instrument targeting China increased by over 40% in the three years following instrument use.