Chinese companies aren't winning overseas just because they're cheaper, Goldman Sachs says

Chinese consumer technology is increasingly challenging the perception that the country's exporters compete only on price.

Luo Yunfei/China News Service/VCG/Getty Images The biggest myth about China's export boom may be wrong, according to Goldman Sachs.

Chinese products often start cheap but become more expensive as they improve.

Price wars often begin with rivals fighting to win back customers.

Chinese companies aren't winning overseas just because they're cheaper, according to Goldman Sachs, challenging one of the biggest assumptions behind China's export boom.

"Intuitively, I think we would all associate with the Chinese product, with price deflation, price cuts," Trina Chen, co-head of Greater China equity research at Goldman Sachs, said on the bank's "Exchanges" podcast published Tuesday.

But Goldman found Chinese products often become more expensive after entering foreign markets, partly as their quality improves, while price cuts tend to come later as established rivals fight to defend market share.

The finding challenges the view that Chinese firms win foreign markets by relentlessly undercutting rivals on price.

It comes as policymakers from Washington to Brussels grapple with a surge in Chinese exports, part of what someeconomists have dubbed "China shock 2.0." China's weak domestic demand and years of deflationary pressure have also fueled concerns that its exporters could push down prices overseas.

More than a race to the bottom Goldman analyzed 11 sectors and 40 Chinese and global companies to study where Chinese firms are gaining market share.

Chinese products typically enter new markets at about a 30% discount to incumbent rivals, but prices often rise in subsequent years.

Chen said higher prices could reflect factors including inflation, economic cycles, and improvements in product quality.

Chinese companies often raise prices as their products improve without losing their price advantage over competitors.

Chen said the discount versus competitors generally remained stable.