China’s economic growth: Seven lessons
I have just returned from my first visit to China since the GFC and signs of confidence and growth are everywhere. Here are my key observations about China's economic growth.
1. China’s economy is booming
The evidence of China’s economic growth is everywhere – in construction, infrastructure, property, retail and large scale manufacturing. China’s economy seems certain to maintain its average growth rate of 8.5% p.a since 1978, despite the dire predictions of late last year, and 2009 will surely be remembered as the year in which China “de-coupled” from the US. To use a well worn analogy: the train has most certainly left the station – either get on it or get out of the way!
2. The Chinese Government is making all the right moves to ensure confidence, stability and national pride in the country’s achievements
The timing, size and impact of last year’s US$586 billion stimulus package has delivered an immediate return to the economy but the greatest benefits have been delivered in so many other ways, including:
- The upgrade in infrastructure in the first tier cities, notably Shanghai and Beijing, which are now as impressive as any city in the world.
- The investment in the second tier cities such as Chongqing (population 20m) is large, significant and impressive.
- The English language is widely spoken at all levels of society, particularly amongst the younger generations.
- The quality of service in shops, hotels, restaurants and even in the markets is now at an international level. Many regular travellers to China (myself included) used to complain that, whilst the “hardware” (i.e. hotels, airplanes, shops, roads) was often world class, the “software” (i.e. service, language, skills, training, attitude) was often lacking. This is now changing very rapidly.
3. Domestic consumption is rising rapidly
This is the great test for China. With the collapse of its exports to the developed world, can it consume enough internally to maintain its momentum? With the busy shops and signs of western-style consumerism, it’s looking encouraging on the streets of Shanghai and Beijing.
"The evidence of China's economic growth is everywhere - in construction, infrastructure, property, retail and large scale manufacturing."
4. China is leading the world in renewable energy sources
China is now producing more solar energy than the rest of the world put together and this was noticeable in Beijing with many of the street and highway lights powered by solar panels evident along the side of the road. China plans to build seven large wind-power bases over the next decade and, whilst China’s energy needs are expected to double by 2030, it expects to meet at least half of those needs from wind and solar power sources.
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5. The Private Sector is growing rapidly
China is now shaking off its image as a country dominated by a small, lumbering collection of large state owned companies, and an increasing number of opportunities now exist in the private sector.
6. China is moving up the value chain
China is looking to upgrade the quality of its exports by moving into higher value manufacturing capabilities. The collapse of low value exports to the developed world has forced the whole country to accelerate its move down this path.
7. Australia is not taking China seriously enough
In conversation with many Australian Chinese and Expatriates living in China, I was surprised and dismayed to hear the view that Australia is losing out to the US, Japan, Korea and European countries by not taking China’s economic growth seriously enough.
It seems that, whilst many Australians are coming to China to “take a look”, very few ever come back again to do something serious.
Australia’s exports to China are dominated by our resources sector (which represents only 6% of our GDP) which means that there is significant potential to export the other sectors of our economy, especially those in which we offer innovative processes, technology and world-class products and services.