What’s Next for China?
China’s stock market turmoil has unleashed a torrent of speculation about what the country’s future might hold. What’s next for China, and what are the implications for companies and for individuals who do business there? Although it is difficult to predict short-term economic changes that may occur next week or next month, there are several things we know about China that are likely to shape its longer-term direction.
1. China Matters
The familiar BRIC acronym has misleadingly suggested that Brazil, Russia, India, and China are more similar in terms of their economic growth rates and potential than is actually the case. Jim O’Neill, who first coined the BRIC term, points out that China’s economy is now 1.5 times the size of the other three BRIC countries put together, and is already bigger than France, Germany, and Italy combined. China’s population of 1.4 billion people is almost 10 times the size of Russia’s and 7 times the size of Brazil’s – only India’s population is close to China’s.
With the Chinese economy becoming larger, it is natural for economic growth rates to slow. We have seen this pattern before with Japan, South Korea, and even the U.S. in earlier decades. This slowdown will also be reinforced increasingly by a demographic shift as China’s working age population begins to level off and shrink – this is probably one of the greatest differences between China and India, where the average age is younger and the workforce continues to expand. Yet even in a tumultuous year and with a dose of healthy skepticism about official statistics, China still appears to be growing at more than double the pace of the U.S. and triple that of the EU, and this level of growth seems likely to continue for some time.
As the world’s second largest economy and still on a pace to become its biggest, China will be a key player for the foreseeable future for almost every global enterprise as a source of employees, customers, partners, and competitive rivals. And this is true not only for North America and Europe, but also for countries in Africa and South America as well for whom China is their single largest export destination.
2. China is Complex
Too many accounts paint China with a single brush, but the country holds many different economic environments and levels of development. Shanghai is startlingly modern and polished, clearly a first world city with a more mature economy, and very different from second or third tier cities in the west or the north where breakneck growth continues. There are great swaths of the country that are still primarily rural, and these are undergoing their own transformations as people move to the cities by the millions each year and agriculture is becoming more mechanized.
There is considerable variety by industry as well. Apple has doubled its revenues in China this year with the runaway success of its smartphones. Internet service firms such as Alibaba and Baidu continue to thrive. But anyone who has seen the row upon row of empty apartment buildings outside of many major cities can discern that Chinese real estate has been overbuilt, and countless state-owned enterprises still have bloated staffs and produce poor quality goods. Other industries such as the automotive sector are mixed, with strong foreign and domestic brands continuing to gain ground, while many of the other 50 plus participants in China’s wildly diverse competitive landscape – including companies owned by national government entities and provinces as well as joint ventures with every major global firm – face a shakeout due to overcapacity.
3. China Has its Own Agenda
Savvy multinationals have done well for decades by following the development stages of China’s economy and the conveniently declared intentions of its one-party government. Certain current trends are a natural consequence of China’s growth and will continue to receive a push from Beijing: targeted export markets, urbanization, the shift towards a service economy with greater domestic consumption, and the growth of alternative sources of energy. When the government decides that it wants to move, it often acts in a big way that transforms markets. China’s energy industry, which is best known for burning half of the world’s coal, will install this year nearly double the amount of solar capacity that is installed in the U.S., and has quickly become the world’s largest solar market in terms of both production volume and demand.
China has reached a classic inflection point where hundreds of millions of people have moved from rural poverty to membership in the middle class – with levels of income to match – and most want to purchase goods and services that will make their lives and those of their children more convenient, secure, and enjoyable. They are tired of foul air, dangerous drinking water, and tainted food scandals, and they desire better lives for their children. The pent-up desires of these new consumers are a significant force as well.
Companies that know how to pick their spots in a way that is consistent with Chinese aspirations will find that opportunities still abound so long as they can create strong alliances and fend off local rivals. Transportation, pollution control systems, electronic gadgets, travel, education, and high quality consumer goods such as food or luxury items, for example, all hold future promise for multinational participants in China’s growth.
For non-Chinese businesspeople whose careers have become linked with China, it is a good idea to stay close to Chinese colleagues who can shed light on the rapid changes that are occurring, and to continue to invest in strategic partnerships and in employee development . Chinese counterparts are likely to remember whether you remained consistent in your commitment to their market or turned away at the first signs of trouble. And for the parents who were thinking of enrolling their children in that Mandarin class or perhaps studying the language themselves, it is best to stick with those plans. China has emerged on the world stage and will play an increasingly prominent role as its economy continues to grow – this is still one of the most compelling dramas anywhere in our global village.
- Pessimistic Views of Chinas Economy Are Unconvincing, Bruegel
- China is Utterly & Totally Dominating Solar Panels, Fortune