Is China's Growth Faltering?
Updated: Jan 17
This article was written by Mei Xin Wang. All views and opinions are strictly her own.
China’s economic growth has been powering ahead for decades. However, recent headlines make some sober reading. In the third quarter 2018, China’s GDP grew 6.5 percent, less than half of its peak of 15.14% in 1984, and the slowest since 1990. Indeed, car sales have slumped. The property market has cooled from its heydays. The headwinds are increasing from both domestic and international fronts that threaten to push China’s economic growth off the track. This no doubt makes us wonder whether the China engine still has enough power to forge ahead. In my view, the answer is probably a YES.
Made for China
In the UK, the 11th November that has just passed was Remembrance Day, remembering the end of the First World War. In China, it has a completely different meaning. Since 2009, it has become a day that the Chinese go shopping online on a massive scale. Why 11th November? Because the numbers 11.11 look like four single persons and were coined by a group of young people in 1993 to celebrate being single. In 2009, Alibaba, having spotted this social trend, turned it into a Singles Day shopping event. Since then, sales have broken records every year. This year, total sales reached RMB 213.5 billion yuan (USD30.8 billion), up 27% from last year, and this was achieved within 24 hours.
The dominant group who went for this shopping spree was the ‘post-90s’ generation. They in turn belong to a larger demographic group, the millennials, people who were born between 1981 and 1996. Together, they comprise about 25%, or nearly 400 million, of China’s 1.4 billion population, and they outnumber the entire population of the US.
The distinctive feature of China’s millennials is that they are often the only child in their family, the result of China’s years of ‘one-child policy’ (1979 – 2013). As such, they have the love and financial support from their parents and grandparents. With most of them also at the height of their earning and spending power, this is a ‘ME’ generation who are not shy of spending money and showing individualism in taste, unlike their parents. They are also more educated, well travelled and abreast of new technology trends. Their propensity of seeking happiness for themselves is mirrored in the products they bought during the 11th November shopping day this year – electronics, health and beauty products and clothing apparel dominated the top of the shopping list.
The proportion of the millenials is increasing due to those ageing beyond 2013. It will make up 46% of China’s urban population by 2021, according to a study done by the Boston Consulting Group. The purchasing power of this group of people will contribute to make China a country of consumers.
Catering to the demands of these millennials will offer tremendous opportunities for companies to have products designed and made for them. China has promised to open its domestic markets to the wider world. To encourage import, the tariffs for products from machinery to textile products, have been cut. The government-hosted Shanghai International Import Exhibition in November this year signaled a more friendly environment for overseas manufacturers and products to enter the China market. Made for China to satisfy the appetite of Chinese consumers, in particular those of the millennials, has only just begun. These consumers will not only help the economic growth of China but also that of the world.
Made in China
Consumption-led economic growth is only a recent phenomenon. Manufacturing and exports are still the main drivers of China’s economic growth.
It is well known that China’s growth model has leaned heavily on investments in infrastructure and manufacturing over the years. The railways, roads, bridges, factories and houses that China built modernised the country but at the same time has resulted in overcapacity in many industries, such as iron and steel, aluminium, cement and solar equipment. However, the capacity building has made China experts in these industries and given them vast experience in infrastructure construction and project management.
It is this range of skills and the huge base of manufacturing capability that China is exporting to its neighbouring countries, in particular the countries along the route of the One Belt and One Road Initiative. This Initiative was started by President Xi Jinping in 2013 and covers over 85 countries across primarily Asia, Europe and Africa. The number of countries involved is also expanding. Since its inauguration, the Initiative has increased China’s exports and provided China with an extra trade route since the trade war started between China and America.
Since 2013, over US$750 billion has been spent on projects along the route of the Belt and Road Initiative. About half of this money was used to build up transport and logistics systems and one third on energy and utilities. In Pakistan, Turkey, Georgia and Bosnia, China has used its historic expertise in the coal sector to develop new coal-fired power stations. In 2017, China reached deals with Morocco, Australia, Bangladesh, Malaysia and Vietnam to support expansion of solar capacity in these countries. Chinese firms are exporting machine tools and transport machinery to African countries to upgrade their productive potential.
There has been no shortage of scepticism and criticism about China’s motives in promoting the Belt and Road Initiative. However, there is little doubt the Initiative will help China counter the negative impact of the US/China trade war. The improved infrastructure and connectivity in the countries involved in the Initiative will lift the living standard of these countries, stimulating demand and the economic growth as well. It has enthused BHP to claim that ‘Copper Bottomed’ as it estimated that the Belt and Road projects could result in up to 150 million tonnes of incremental steel demand in the next ten years and 1.6 million tonnes of refined copper demand, equivalent to 7% of annual global demand in 2017, with most of the demand generated from the power sector. The connectivity built up along the route of the Belt and Road countries will undoubtedly increase cross-border trade and it is not difficult to imagine that the lion’s share will probably be taken by China.
China’s economy may have come off the boil. However, the country has always been able to adapt and progress. China has years to capitalize on its status as the world factory. The enriched Chinese will become the new force for the economic growth of China and the world. There will still be many years to come for China still to be the engine of world economic growth.