Spotlight on: China

China delivered one of the highest growth rates of any global economy over the last decade. However, its recent real estate slowdown and resulting stock market turmoil reignited fears of another global financial crisis. Could we be about to witness the great fall of China - or will the country continue to power the global economy? Explore our selected insights on China to find out more.

Peak China?

China’s real estate slowdown and its subsequent stock market turmoil have reignited fears of another global financial crisis. But behind the headlines, the country appears well-positioned to remain a significant – if no longer unrivalled – engine of global growth according to our recent CEO Insights post: How worried should we be about China?

For the past 20 years, China’s phenomenal economic rise has provided a powerful driver for international growth. China’s low wages, high investment rates, pragmatic market liberalisation and an export-led strategy delivered the highest growth of any global economy over the last decade, with annual growth rates double or sometimes triple that of developed market peers. 

As the dominant economy in the BRICs, China’s falter has caused some commentators to ask, Whatever happened to the Brics?, given low growth in Russia and Brazil too.  Combined growth in the BRIC countries has dropped from 11% to 5% since 2010, according to this FT blog article.

China now faces serious structural challenges and its leadership is focusing reform across a number of areas including regulatory, tax and activities of state-owned enterprises. A substantial proportion of recent Chinese investment hasn’t been all that productive as discussed in our Megatrend matters blog: Could China’s investment boom be the next big bubble to burst? In addition, the decline in China’s working-age population highlights the risks of a looming skills shortage, explored in our CEO Insights post, To succeed in China’s new normal you’ve got to have talent. To compound issues, many companies are insourcing parts of their manufacturing activities, originally outsourced to China, in response to narrowing production cost gaps.

Meanwhile, 71% of CEOs in China believe there are more growth opportunities this year than there were three years ago, according to our 18th Annual Global CEO surveyOn the other hand, global CEOs signalled a change in overseas investment sentiment, ranking the US above China - for the first time in over five years - as their most important growth market outside of their own.

Nevertheless, China’s steady growth seems set to continue – albeit at a slower rate – for the next few years. This is due to a wide range of positive drivers, explored more in our recent Megatrend matters blog: Is the Chinese economy facing a crisis?including:

  • The benefits of a weaker currency for export markets
  • Continued urbanisation fuelling demand for housing, infrastructure and other supporting industries
  • The continuing consumer and business adoption of new technological advances, such as a rise in mobile phone usage and cloud computing
  • China’s commitment to invest in Greentech, in terms of smarter and more sustainable technologies and cities
  • Exponential growth of China’s Telecommunications, Media and Technology industry as illustrated in our MoneyTree China TMT Report (also see our further research on China’s Impact on the Semiconductor Industry)
  • Promoting development of the services sector
  • And finally, the rapid increase in China’s M&A activity

Combined, these factors support our latest forecasts in Global Economy Watch for China’s GDP to grow by 6.5% in 2016 and for an average of 5.7% growth from 2017 to 2020, leaving China among the world’s fastest-growing major economies. And size matters. China is already the world’s largest economy in purchasing power parity terms according to our World in 2050 report, and is projected to overtake the US in around 2028 in market exchange rate terms.  Longer term, China’s annual growth rate is likely to level-out to just above average global GDP growth at 3-4%.

China’s GDP is expected to grow by 6.5% in 2016 and by an average of 5.7% growth from 2017 to 2020, leaving China among the world’s fastest-growing major economies.

Rather than the great fall of China per se, we’re more likely witnessing only the latest stage in China’s arduous journey from an export and investment-led economy to one increasingly dependent on domestic consumption for growth. In our view, it’s more likely that China will continue to power the global economy for the next several years at least, albeit at a lower rate. 

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