(Photo: CGTN)

Having exported food products to China for the past decade, a Malaysian manufacturing and trading company said it now plans to set up its own manufacturing facility in the country.

This is despite increasing labor costs in China, coupled with China-US trade tensions which are spurring some companies to relocate their production hubs out of China.

Loh Wee Keng, managing director of Regal Plus (Beijing) Company Limited, remains bullish on Chinese market. His company distributes white coffee, pre-made curry paste, biscuits and durian – all of which are manufactured in Malaysia.

“I think it goes back to how we can reduce our cost and reach the market faster. Because we’re in the fast-moving consumer goods space. If we have our manufacturing facilities here, it will be much better,” Loh said.

Not only does it have to contend with established multinationals, but also cost-effective local players.

In fact, Loh said he has been approached by a few industrial development parks, but as with investment decisions, it takes time. 

To be sure though, Malaysian products are already exempted from tariffs.

“Since ASEAN+3, import duties reduced or come to zero, a lot of Malaysian products come to China and become very competitive. Demand for Malaysian products is growing very fast after the free trade agreement,” Loh said. 

Loh first ventured into China in 2003, two years after the country joined the World Trade Organization. In 2007, he registered and established his own brand of food products – besides also distributing that of other Malaysian brands.

Higher A&P spending worthwhile

Still, China’s fast-changing and ever-evolving consumer market is keeping players like Loh on his toes.

“Chinese customers are very dynamic, every year there is a difference in marketing tools. From traditional retailing, to e-commerce, and now the merger of online-offline channels,” Loh said. 

“Whenever a new innovative product comes up, we have to keep track. We have to follow the trend, opening our own TMall, JD and now even WeChat shop; or else we’ll be phased out by market forces,” he added. 

As such, the advertising and promotional spending to constantly upgrade product offerings and follow market trends can be hefty, Loh quipped. But China’s huge market is too enticing to be dismissed.

Future growth to be driven by 3rd-tier cities

According to Loh, his company has raked in an average revenue growth of 15 to 20 percent in the past 15 years. He said he is comfortable with this pace of growth and continues to see China as a very viable market. 

“We only know of the developed major cities, but there are many more second- and third-tier cities which are undeveloped yet. We sense that in the next decade or so, growth will be driven by third-tier cities,” Loh said. 

This is seen in the upgrade of buying power in those developing cities, where consumers seek food safety and better taste.

“Especially in China where with its two-child policy, so they want to feed their children the best so they are willing to pay for the best just for good quality products.”

Another reason is due to China’s restructuring of its internal economy, Loh pointed.

“Major cities like Beijing and Shanghai are trying to relocate workers out of the cities, whilst the government is looking to develop the second- and third-tier ones and hence policies are more encouraging in those cities,” Loh said.

Meanwhile, Loh does not see much impact to his business from the ongoing China-US trade frictions. 

“In fact in the short-term, I would say Malaysian products will benefit as China imports less from the US… as the Chinese would still need to consume food, and they will look for alternatives, so Malaysian products could be a good choice for them,” he said.