Chinese companies' overseas success not solely due to low prices, Goldman Sachs says

Chinese companies are increasingly challenging the perception that their overseas market share gains are solely due to lower prices, according to Goldman Sachs. The investment bank's research suggests that while Chinese products often enter foreign markets at a discount, their prices tend to rise over time as quality improves.

Trina Chen, co-head of Greater China equity research at Goldman Sachs, explained on the bank's "Exchanges" podcast that the intuitive association of Chinese products with price deflation is being challenged. The study analyzed 11 sectors and 40 companies, finding that Chinese products typically enter new markets at about a 30% discount to rivals. However, prices often increase in subsequent years due to factors such as inflation, economic cycles, and product quality enhancements. Chen noted that the discount versus competitors generally remained stable, even as prices rose.

Examples cited include Chinese electric vehicles, which sell at roughly a 20% discount to comparable global models, a gap that has remained stable for three to four years. Robot vacuum cleaners showed a more dramatic shift, entering the US market at a 40% discount but now commanding a roughly 60% premium due to ongoing innovation and added functions. Chen stated that the entry of Chinese products does not necessarily create additional pricing pressure for many years.

Instead, price cuts are often initiated later by established competitors struggling to defend their market share. Goldman Sachs found that Chinese companies tend to gain market share fastest in modular, consumer-facing, high-growth products. Their progress has been slower in mature, interconnected business-to-business markets where factors like customer trust, servicing networks, and long operating track records present greater barriers to entry.