How China’s expat business owners have diversified to survive

The economic tides in China have shifted, and many who intended to keep riding the wave have had to change direction. Using their diverse backgrounds, many foreign small- and medium-sized business owners have leapt headlong into the newly invigorated consumer economy of China, and seen their themed establishments flourish in a country,  brimming with customers hungry for new products and food, foreign tastes and better quality.

The 2008 global financial crisis demonstrated the instability of China's manufacturing-based economy, and the country has been actively cultivating its domestic service sector ever since. The transition has happened, as consumer-driven industries now make up 46.1 per cent of China's gross domestic product (GDP), three percentage points higher than manufacturing (2013 estimate). Stimulating this transition, the average wage in China has increased more than fourfold over the past decade and per capita disposable income has risen three times. This is money that the people are not squeamish about spending, as household consumption has grown 11 to 15 per cent annually from 2008 to 2013.

While higher wages fuelled the consumer economy, the flip side was that they inhibited the growth of the manufacturing sector. “It's becoming just as expensive to manufacture a product in China as it is for companies to do it at home,” says a businessman, a former New York day trader who moved to Shanghai in 2000 and set up an import and export company in 2005, and who declined to be named. “This fact,  coupled with a 25 per cent strengthening of the yuan, resulted in China losing its title as a cheap place for production.”

Functioning as the China-based eyes and ears of American and European companies, Gus sourced high-ticket items such as outdoor furniture, garden supplies and metal fencing from factories, and coordinated their shipments overseas. Profits were initially good, but over the intervening decade he saw orders dwindle from 20 to 25 containers per month to half a container a few times a year.

Fearing that he would soon go under, Gus switched strategies: he looked to the domestic market to find a new engine of financial growth. He started making French pastries in his apartment with his wife and children  and selling them at health-food  stores around the city. A few months later he opened a small cafe in a shopping district. From the start, the place was well received by expats and Chinese customers, the types of sweet and savoury snacks they offered satisfied both palates. “It's been paying for itself since the first day,” Gus explains. He plans to open more branches in shopping malls around the city this year.

Alex Papps moved from Hungary to Xiamen in 2005, and soon started an international trading company. Mostly manufacturing and shipping hi-tech medical equipment to Australia and Europe, he hasn't yet seen a fall in earnings like other exporters, but he decided to tap into China's booming service sector. In 2008, he opened the first Pappy's Restaurant location. Serving a mix of specialised Western and Chinese cuisine, along with difficult-to-find health-food products for modest prices, the restaurant was an immediate success. Papps  expanded to four locations around Xiamen, and plans to have 10 in the city within a couple of years and eventually franchise out to other places around the country.