Bag It Up:
Louis Vuitton, which advertised its Shanghai boutique with this huge piece of luggage, is cashing in on China’s new rich
Pack Your Bags for the Orient Express
Trade between the E.U. and China has more than doubled since 1999, and European businesses are clamoring for a piece of the action. But only the savviest will take home a trunk full of riches. In side the great Chinese gold rush of 2004
Posted Sunday, October 10, 2004; 12.57 BST
Carrefour, Europe's biggest retailer, has seen the future and it looks like this: plastic bins filled with dried squid tentacles. A traffic jam of shopping carts shaped like Volkswagen Beetles. Live mandarin fish packed so densely that they jump from their tanks and flap onto the floor. That was the scene last week at a Carrefour hypermarket in Beijing, one of 53 the French company now operates in China. Since it arrived in the mid-1990s, and particularly since the introduction of new retail regulations three years ago, the company's growth rate has been torrid. Chinese sales now amount to $1.6 billion annually — double those of its biggest rival, America's Wal-Mart — and they're increasing by 33% per year. Carrefour expects to open 15 new hypermarkets annually for the next few years, and recently launched a chain of smaller supermarkets in Shanghai and Beijing. The appeal for Chinese customers and authorities alike is rigorous hygiene, a carefully selected mix of local products and European brands, and stores around the country — from bustling Shanghai to Urumqi, the capital of the remote northwestern province of Xinjiang. "Carrefour is scientific and progressive," says Zhang Jinbao, a former soldier, scooping up rice from an open bin in the Beijing store. "They sell everything, and it doesn't smell bad."
Europe's relations with China have never been so sweet — or so profitable. As the two enjoy a new political lovefest (see West Meets East), their trade and business relationship is also blossoming. Over the past few years, while politicians focused on bringing the former communist states of Eastern Europe into the European Union, European business was looking further East. After overtaking Japan in 2002, China moved past Switzerland last year to become the E.U.'s second-largest trading partner. It's still behind the U.S., but it's catching up fast. Bilateral trade has more than doubled since 1999 to $125 billion last year; it now totals the annual economic output of new E.U. members Estonia, Latvia, Lithuania, Slovenia and Malta combined.
All of which helps explain why, as French President Jacques Chirac embarked last week on his tour of the world's fastest-growing economy, traveling with him were 52 executives, including Noël Forgeard, the president of Airbus, which hopes to beat Boeing to win new aircraft contracts, and the ceo of financially troubled Alstom, which makes TGV fast trains. Alstom is lobbying the Chinese to pick the TGV for a $12 billion high-speed Shanghai-to-Beijing rail line that the Chinese are building for the 2008 Olympics. Over the weekend, Alstom announced that Chinese authorities awarded it $1.6 billion in other contracts, including one for 60 regional trains. Also in town this week is Scottish First Minister Jack McConnell, whose itinerary includes a visit to the Beijing factory of Clyde Blowers Ltd., a Glasgow-based heavy-engineering firm that makes equipment for power stations. "In the U.K. there are 22 power stations that have been built," says Dean Reilly, the firm's marketing development manager. "In China they're building more than that every year."
Other European firms have already racked up mind-boggling results. Danone today sells more of its local Wahaha water in China than it sells Evian worldwide. European automakers — including Volkswagen, Peugeot and Fiat — have Chinese plants with the capacity to produce 1.3 million cars per year, and plan to double that by 2010. China is the one bright spot for Germany's beleaguered engineering industry, which sold $6.8 billion worth of machine tools and other equipment there last year. And shortly before Christmas, the Italian luxury menswear company Ermenegildo Zegna, which already has 50 outlets in China, will open a cavernous showcase in Shanghai that is almost as big as its flagship store in Manhattan. Paolo Zegna, co-chief executive and grandson of the company's founder, speaks for many European business leaders when he says: "We're astounded by the speed with which it's growing."
There's no doubt that China is undergoing one of the largest economic booms the world has ever seen. In little more than a decade and a half, 50 million Chinese have leaped into the middle class, while the country is on course to overtake Japan as the world's second-largest economy in just 10 years' time. The richest of China's budding capitalists are voracious consumers, and luxury-goods companies such as Louis Vuitton and Ferrari are tapping their wealth. Vuitton expanded its flagship store in Shanghai in September and will open two more stores in China this year, bringing the total to 13. Yves Carcelle, Vuitton's president, says sales are growing by at least 50% every year and that, worldwide, mainland Chinese are now the firm's fourth-largest customers. "They have an incredible appetite for consumption," he says.
But China is far more than just a big market for European goods; it also provides an opportunity to cut costs at home. A growing number of companies, from Italian fashion houses to French telecommunications operators, have shifted their manufacturing to China or are outsourcing it to firms there. Late last year, France's Thomson gave up making televisions and handed the task to a Chinese competitor, TCL, through a joint venture that is set to become the world's largest TV manufacturer. Its brands include the fabled RCA. Thomson's TV business lost more than $100 million last year, while TCL's posted profits of about $70 million. A few months later, in June, Alcatel inked a similar deal with TCL over production of its mobile-phone handsets. Carrefour alone is seeking to buy $3.7 billion of Chinese-made goods to sell in its stores in Europe and elsewhere this year. Jean-Luc Chéreau, Carrefour's general manager for China, says the firm set up a global sourcing bureau in Shanghai last year and has 11 offices around the country that hunt for products to purchase. China "has become the workshop of the world," says Christian Henriot, director of France's Institute of East Asian Studies.
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Switzerland last year to become the E.U.'s second-largest trading partner. It's still behind the U.S., but it's catching up fast. Bilateral trade has more than doubled since 1999 to $125 billion last year; it now totals the annual economic output of new E.U. members Estonia, Latvia, Lithuania, Slovenia and Malta combined. 
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