August 25, 2016    4 minute read

China’s Vision And Challenges

Adapting To The New World    August 25, 2016    4 minute read

China’s Vision And Challenges

Since implementing the ‘opening up’ policy towards the West in the late 1970s, China has changed significantly: a move from a traditional farming country with a planned economy to an urban and industrial community based on a market economy. However, its two-digit economic growth era belongs to the past. For 2016, China is expecting a GDP increase of between 6.5% and 7%, according to the estimates of the World Bank and the IMF, which is a high figure even on an international level. President Xi Jinping labelled this lower GDP growth as the “new normality.” Some important causes for this trend are the loss of trade competitiveness due to unfavourable production cost development, the outflow of foreign capital, problematic structural transition, lack of specialised personnel and regulatory rigidity, etc.

China’s Future Growth Engine

Whether China experiences a smooth process and will come out stronger in the long-run or whether it sees a great fall will largely depend on how far the reform objectives, defined in the Chinese national 13th Five-Year Plan, are achieved.

The Yangtze River Delta Economic Area, consisting of Shanghai, Zhejiang, Jiangsu and Anhui, plays a key role in the Chinese economic development. This region is characterised by a strong modern industrial structure and a prevalent tertiary sector. The implementation of the reforms enables companies there to enhance their technological level and production efficiency, allowing consumption to become the major economic growth engine.

91bn renminbi were the total e-sales
on Singles’ Day in 2015

In 2015, the Yangtze River Delta Economic Area generated more than one-fifth of China’s BIP. Shanghai, Zhejiang, Jiangsu and Anhui’s real GDP grew by 6.9%, 8%, 8.5% and 8.7%, respectively. With that said, the provinces were not only able to reach but also surpass their growth targets. Also, the robust consumption and the successful structural transition, in particular, in the branches of e-commerce and industrial and communication technology strengthens the global position of East China. Note that the “Singles’ Day,” which is a sales event by Alibaba and other e-commerce companies on in November 2015, had a total turnover of 91 billion renminbi, 60% more than in 2014. Furthermore, it is interesting to note that the foreign trade is losing its importance as a growth engine.

Financial Markets Turbulences

However, due to the slow withdrawal from the old economic model of growth, the scepticism of the future economic development can be observed and has been reflected in the equity and currency markets. At the very beginning of 2016, a decline of 7% in China’s stock market took place in January leading to a halt in trading. From the perspective of many analysts, the Chinese regulatory body reacted again too quickly and haphazardly like in the summer of 2015 (tightening the regulation of share sales of large-scale investors, abandoning and lifting of regulation on trading halts). Due to these extreme acts, China has earned the title of “Social Market Economy with Chinese Characteristics.” All this is threatening the political stability and is sparking social disturbance.

Shanghai – The New Hope?

Now China is willing to formulate strict and transparent regulation in order to become a world player in science and innovation. For instance, visa requirements have been relaxed in order to attract international talents. In that way, a smooth and soft landing may be expected. Note that Shanghai is in the midst of this structural transition. The city pursues the goal to become a world-leading financial, economic, trade, research and innovation centre. For 2016, new growth impulse is expected to come from aircraft manufacturing, implementation of the free trade agreement between ASEAN and Korea and improved convertibility of the renminbi.

120m passengers will be the yearly capacity of the Shanghai airport

Additionally, Shanghai remains a preferred location for many foreign companies. The city has succeeded in building up research and development centres, Shanghai’s harbour is the largest in the world, the airport will become the third largest globally with a capacity of 120 million passengers per year after its expansion work finishes in 2019 and the structural transition from industry to service runs slowly but continuously. Symptomatic for this is that the largest foreign investment is not an industry company but a Disneyland complex.

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