New record of Finnish exports to China likely in 2017

There is viable potential for growth in Finnish-Chinese economic relations despite a slight decline in the Chinese economy, Finland's business backed economic think tank ETLA has said in its latest research.

The wide probe into the economic relations between the two countries in recent decades has been titled "The Lion and the Dragon". The writers were Markku Kotilainen, the research director of ETLA, and Villa Kaitila, a researcher of the think tank.

The report published this week indicates that Finland has recovered from the aftermath of the crash of Nokia mobile phone business, and 2017 may be a historic record year in the value of Finnish exports to China.

NEW RECORD YEAR

Although Chinese economic growth has slowed down compared to previous years, the two researchers both point out that the level of growth in China is still much faster than in western countries, which may contribute to the increase in bilateral trade and investment.

During the first half of 2017, the value of Finnish exports to China was 1.76 billion euros (2.07 billion U.S. dollars). The researchers predict that if the second half is as good, 2017 will be the record year in the value of Finnish exports to China. The value in 2016 was 2.85 billion euros.

The writers believe Finland and China complement each other both in know-how and in resources. They note that the Chinese are interested in Finnish competence in ITC, clean tech and forest industry. The same applies to availability of forest raw material and the potential of making use of it.

Kotilainen and Kaitila have shown a vivid picture of how Finnish service exports and investments to China plummeted along with the negative development of the Nokia mobile phone production but have now recovered.

In 2010, the value of Finnish service exports to China was at one billion euros, only followed by a fast decline. ETLA now concludes it was attributed to the sale of Nokia mobile phone production to Microsoft. Also, direct Finnish investments to China used to be four billion euros per annum, but plummeted to zero in four years.

Since 2014, Finnish exports of service have grown again, reaching 1.2 billion euros last year. The researchers include Chinese tourism to Finland as sales of services to China.

The researchers underline the importance of the subsidiaries of Finnish companies in China. "The role of subsidiaries is larger than that of exports," they say.

Finnish subsidiaries in China comprises 12 percent of the turnover of Finnish subsidiaries abroad in 2011, but was reduced to a half when Nokia declined. In 2015, the figure recovered to 7.5 percent.

CEILING OF IMPORTS

Despite the brisk Chinese economic growth in last decade, Chinese exports to Finland seem to have reached their ceiling under prevailing barriers of trade, the researchers say.

China is the fourth largest source of imported goods to Finland. The level had increased until 2009 and has remained stable since. In all, China covers seven or eight percent of Finnish imports.

"The market share of China in imports to Finland has reached its ceiling level, under existing structures of production and demand, and the barriers of trade," Kotilainen and Kaitila have said.

"World trade has reached a certain balance at the level of the present barriers of trade and globalization. If barriers of trade could be further reduced, international trade and value chains would acclimatize to the new situation", the writers note, reminding at the same time that barriers could be increased as well.

Meanwhile, Chinese investment in Finland is growing rapidly, even though Chinese investment in Finland has so far been low. In 2015 there were 16 Chinese subsidiaries in Finland.

Recently, Chinese companies have become active in Finland in areas where Finland has either specific know-how or raw materials. Developments include the acquisition of a majority stake in the mobile game company Supercell by the Chinese internet giant Tencent in 2016.