Is China Still A Hot Economy?
In the past 10 years I’ve spent a lot of time in China doing business. It depends how you quantify things but I can speak anecdotally and from experience.
China’s GDP growth is no longer double digit
China’s GDP has dropped from the double digit miracle of 10.1% in 2010 to 6.1% in 2016. In terms of numbers there is no doubt China is slowing down but still 6% growth is nothing to complain about. Why so? Because the miracle that is between 10-15 years behind China in Southeast Asia for example is showing similar growth.
Malaysia in 2016 was 4.2% which is a fair drop compared to 2010’s 7.5%. Indonesia follows a similar trend with 2016 being 5.0% and 2010 being 6.4%. We can see a general trend in Asia especially that China is following with moderating GDP but the hype would have you believe otherwise. Don’t get me wrong Southeast is undoubtedly poised for huge growth, it’s just that the hype would have you believe there is double digit growth that hasn’t arrived just yet.
Changes Have Happened
Of course this is no surprise, the Chinese government itself planned for this and stated that double digit GDP is not sustainable into the future. China’s stated goal has essentially been to transform themselves from a labor based economy to a knowledge based economy with internal consumption largely sustaining this. To the credit of China I think they’ve largely achieved this. The evidence is everywhere with constantly rising wages, Chinese citizens are becoming more affluent, buying more expensive items and high end goods have flooded the Mainland and they are intended for the locals. This presents a huge opportunity for companies who have such items on offer.
Missing from the above picture are things I’ve heard from friends and colleagues. A lot of manufacturing companies have packed up shop due to rising costs including labor and moved to Southeast Asian locations. In turn there are less jobs for expatriates than in previous times and with rising living costs in China it has been less attractive to some business sectors and expatriates alike. With less production from the labor force in China, it’s only inevitable that the GDP has moderated.
It’s not all bad
A lot of people have said that some companies entered the Chinese market because it was so lucrative and with less competition. Today that’s no longer true as China’s economy has matured and the country itself has been modernizing and changing at break-neck pace. The one unintended impact is that this also created an environment of uncertainty for some businesses and sectors.
However, it’s not all bad depending on who you ask. China’s ecommerce market is thriving, in fact part of the reason why some companies are no longer there is because just like the West (but even moreso in China) the digital economy and internet have literally transformed and revolutionized the country. What worked yesterday is no longer valid or effective today and this is a general statement for how things are done in China (things move fast!).
Stats in China showed the ecommerce grew by 26.2% in 2016 for a whopping 5.16Trillion RMB/CNY! In fact ecommerce in China is said to represent 15% of ALL retail sales in China and of course these numbers are only expected to increase.
So is China still hot?
It depends from who’s perspective, internal consumption is rising, so are wages, GDP is still fairly high and eCommerce continues to be a huge factor in China. If someone wanted to get into eCommerce in China or offer goods to the growing middle and affluent class in China I would say it’s still hot. As always it is best to diversify and not rely on a single economy.