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Is China’s Economic Miracle Over?

Via LinkedIn : This question has been running around for at least the past 10 years. Is China’s growth sustainable? When will it stop if it ever does? Will it be a soft or a hard landing? Each time China’s GDP forecast drops, a wave of panic spreads through the entire world. What most people still fail to see is that China’s economy is going through a colossal transformation which can’t be analyzed with metrics of the past.

It is true that China is nearing the end of its explosive growth period, but this does by far not mean that its development is over, and that we should change our attitude towards business in China.

China is still a great country to invest and do business in; you just need to adapt your strategy to its new realities to be able to rip the benefits.

Here is why …

1. It takes around 50 years for an economy to develop. If you compare the economic development of Western European countries, Japan, South Korea, China and India for the past one hundred and fifty years, you notice that it always happens in 3 major stages: a first period of stagnation (which can be quite long), followed by an exponential growth (explosive in our case), finally ending with a deceleration (remember 1997?). This process takes around 50 years and China is just 35 years within this cycle. We still have 10-15 years of growth in front of us with probably a few small bumps along the road.

China

2. China follows closely Japan’s and South Korea’s path.Those 3 countries have a very similar cycle just shifted by 20-30 years. Japan and South Korea started their development by textile, moved into heavy industry, consumer good export, and finally settled into high technologies and market economies. China follows the same path but is so far still a major net exporter struggling to transition towards a market driven economy. With more than 356 million people entering the middle class in 2020, it is easy to infer that there will still be plenty of business opportunities to seize.

China economy

3. China is far from having reached its peak. With a population close to 1.4 billion people, 15% of the world’s GDP, 10% of the world crude consumption, 33% of the world steel production, 46% of the world pig meat production, and more than 30% of the world consumption in aluminium, iron ore, copper, lead and nickel, China just can’t be set aside. China plays a rising role internationally on all those markets, is hungry for the best, and for technologies able to enhance its productivity (still quite low compared to international standards).

4. Business is radically changing. When you are nearing deceleration, business shifts from a pure organic growth model to an aggressive fight for market shares. You can’t anymore just build capacity in China and passively wait for orders to come (how many have done that?). Business is still there, it it just more difficult. Your products need more than ever to be at the right price, right technology, and most important of all quality: Chinese customers do not tolerate bad quality and will not pay any more a premium for it. This new paradigm seems to be extremely difficult to grasp for some western companies. This is the end of the China cheap: if you want to sell in China, you need to bring high technology, innovation, quality and competitive costs (smashed Lamborghini to prove it below…).

Car

5. China becomes an investor. This is by far the most underrated change which is happening right now. China is aggressively promoting the RMB (Chinese Yuan) on most markets as a reserve currency and slowly marks the path for a full convertibility. With more than US$3.8 trillion (12 zeros after the decimal) in foreign reserves, you can imagine that it won’t take long for China to go into a frenzy of acquisitions and get the best available out there (the Waldorf-Astoria is Chinese now …).

Yes, China’s story is far from being over yet!

Agree or disagree? Feel free to express your opinion in the comments.

 

About the Author

Yannick Feder is a seasoned procurement executive having a thorough international business experience. For more than 16 years, he helps companies establish, manage, develop and improve global procurement teams across the world. He spent a great part of his career in Asia and China.

He made his mission, to educate, to distract and enrich through his blogs tackling a wide variety of subjects.

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