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The Economics of China

 10 min read / 

The Asian superpower has consolidated its position as the second-biggest economy in the world. After decades marked by population growth, major trade agreements, and a very open economic policy, China went out to become a local leader. Now, it has shown a willingness to really accept a full leadership role in world affairs, particularly since Trump’s promises of protectionism.

The extent of Chinese investment can be seen everywhere, from energy companies all over the world and peace-keeping missions in Africa to Hollywood blockbusters. Chinese technology brands have slowly introduced themselves into Western markets and offer fierce competition to traditional sellers.

However, the Chinese government has already been preparing to face extensive demographic challenges in the coming future.

An Ever-changing Economy

A lot has changed in China since 1978, when the Asian country implemented market reforms and went from a centrally planned economy to a market-based one. It emphasised the extreme importance of values such as competitiveness, and openness to establishing trade deals with other nations.

This paid off for the Chinese as the country boomed in the 1990s, leading to major social developments as a consequence. Since 1978, its GDP increased by an average of 10% a year, the quickest sustained surge by a major economy ever recorded in history. Even though it is still considered a developing country, China has been able to pull 800 million people out of poverty.

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800m Chinese have been lifted out of poverty since 1978

It is now making valuable humanitarian efforts in developing countries as well as playing a major leadership role as the world’s second-biggest economy.

Not Quite so Rosy

However, the nation is far from being free of challenges. Its per capita income is still a very small proportionate to that of other modern developed countries, and estimations point out that there are currently still more than 70 million people living in poverty in rural areas, according to the Chinese poverty standard.

There are also major concerns about the extreme inequality and environmental issues caused by fast economic growth. The country is now the largest manufacturing country and exporter of goods in the world, having overtaken the United States in 2010. China has been championing free trade, and, as the largest trading nation in the world, it has trade agreements with several countries outside the World Trade Organization.

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However, the last few years have been marked by efforts in countering high levels of air pollution and investing in transformative state-of-the-art technology and innovation as opposed to traditional manufacturing. China is betting big on establishing itself as the world’s leading technology manufacturer.

The Next Tech Giant?

Many of China’s largest companies are state-owned enterprises, yet none of its top 20 specialises in technology, being mostly focused on oil, energy, and banking. This doesn’t mean, however, that Chinese tech companies shouldn’t be taken seriously. There is great potential for future growth as the country’s top export is electronic equipment (worth $600.3bn in 2015).

China has a monopoly on almost all of the world’s rare-earth metals that are crucial for making most of the tech products we enjoy today, including laptops, tablets, smartphones, and even many military and medical technologies. Two of China’s biggest exporter companies specialise in diversified metals such as these.

Beyond rare earth metals, there are other cases of strong investment that are now paying off. Lenovo is a good example. Not only did the Beijing-based company become the number one computer maker in the world in early 2015, it also managed to do so in less than ten years, after buying IBM’s famous PC business. The company is now looking to become one of the major tech companies in the world after buying Motorola and investing in a new server business.

Shifting one’s gaze from computers to internet businesses, the examples are even easier to spot. Chinese e-commerce Alibaba holds the world record for the largest opening day IPO when it raised 25 billion dollars. Tencent’s WeChat had more mobile transactions over 2016’s Chinese New Year period than PayPal achieved in the whole of 2015.

$25bn is how much Alibaba raised in its IPO

Together with Baidu, these companies make up the top three tech behemoths in China, representing an estimated combined market cap of 400 billion dollars. They are defying gravity in a global digital economy.

China is expanding its influence, and of the top fourteen private tech companies valued at more than 10 billion dollars, five have headquarters in China (according to PwC). Some analysts note that even the new cryptocurrency Bitcoin might have survived one of its toughest years to date thanks to China.

The Dynamics Are ChangingIn fact, it is estimated that China’s bitcoin markets account for about 98% of the entire trading in the global bitcoin market.

While China is still far from being a developed nation, there have been efforts made to improve its status at a steady pace. The national minimum wage is currently 2190 yuan per month, which translates into £251. This may not seem like much, but it’s a significant improvement compared to four years ago, when it stood at 1450 yuan per month – or 10 years ago, when it was just 750 yuan per month.

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Raising the minimum wage is a clear indicator that China’s government is dedicated to giving a better living standard to its massive population and to countering the current levels of poverty. It shows signs of an emerging consumer class that, at the same time, pressures companies’ costs.

When it comes to competitiveness, China reached an all-time high this year, with 4.95 points out of a maximum 7 on a competitiveness index in the World Economic Forum’s Global Competitiveness Report. It comes 28th out of 138 countries on the scale – considerably higher than the 4.55 points it had years ago.

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In a report published in 2014, Deloitte wrote that the key to China’s continued “prosperity competitiveness” is to continue opening up to free markets and the liberal world, as well as letting investment in. However, figures measuring Chinese corruption are not so exciting. On the Perception of Corruption 2015 Index, the Asian giant scores 37 points – worse than the 35 points it achieved in 2007.

This reveals complex reasons for concern. Some measures have been taken, though. The superpower is now in the middle of an anti-corruption campaign.

98% of all bitcoin trades are made in Chinese markets

Last year, the Government sacked General Wang Jianping for “violating party discipline” (a euphemism for corruption). Dozens of other officers were also investigated by the Chinese authorities.

Yet Transparency International has still urged the nation to take “more seriously” its commitment to prosecute Chinese companies for shady dealings with officials from other countries.

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Silent and strategic investment

China has never invested so much in Europe and the United States as it does now. Chinese businesses invested $23bn in Europe and $15bn in the United States in 2015, according to a report by Baker & McKenzie and the Rhodium Group.

Before this, the Chinese Government had been buying European bonds since 2008, and now Chinese companies have stakes in several European businesses – a consequence of the “going out” policy implemented in the 1990s.

$23bn is how much Chinese businesses invested in Europe in 2015

While many notice China’s expansion in Asia, there is also a meaningful investment in Africa. The Chinese way of doing business doesn’t interfere in Africa’s politics and is based on private enterprise, which the local governments seem to appreciate.

In Congo, for example, China is building roads and schools while reaping the lion’s share: natural mining resources to keep its industries running.

Chinese investors have also started to look at Hollywood, too, as a profitable opportunity. Tang Media Partners bought the Hollywood film financier IM Global shortly after Dalian Wanda bought a controlling stake in Legendary Entertainment Production Company for $3.5bn.

Production companies such as Warner Brothers and Lions Gate Entertainment also have Chinese capital, as Chinese investors are looking for better ways to grow a cinema market that will likely surpass the US as the world’s largest this year, according to PwC.

Paving a Sustainable Path

When China signed the historic Paris climate agreement, there was speculation about Beijing’s ability to follow up on the promised deal, and rightfully so. Only 10% of Chinese companies carry out sustainable initiatives. But sustainability is finding its way in China too and some companies are spending hard to make amends.

Since 2008, China’s state-owned companies have been carrying out sustainability projects about water conservation, wildlife protection and carbon footprint reduction. Recently, its government has been pushing environmental regulations, also in order to attract foreign investment more easily.

At this year’s World Economic Forum in Davos, the Chinese President Xi Jinping strongly stressed environmental issues and sparked speculation that China might come to lead the fight on climate change at a time when President Trump doesn’t even acknowledge the issue.

Also, five of the top six solar panel manufacturers and five of the top ten wind turbine makers are in China. Still, with a very long way to go, the Asian superpower made the highest investment in renewable energy in the world in 2016, at $88bn. With Trump’s focus on other issues, the next four years could be a turning point for China as it has the chance to become the climate change champion the world needs.

Can China Keep Up with Itself?

With 1.3 billion people, China has the largest population of any country in the world, but not even the relaxation of the one-child-policy last year has been enough to significantly counter its declining birthrate. This tendency could prove dangerous for the economic future of the nation as its ageing population will increase and pressure public services and social security.

25% of the Chinese population will be older than 60 in fifteen years

According to estimates from China’s Development and Reform Commission, 25% of the population will be older than 60 years old by 2030 (the figure stood at 16% in 2015) – and the population of working age, between 15 and 59, will be 80 million smaller in 2030 than it was two years ago. The question that remains is whether or not it is too late to change course.

Adaptation Is the Name of the Game

China already proved countless times that it is ready to adopt a leadership role while championing international free trade and, perhaps, climate change. It is emerging as a superpower in the tech world and spreading its footprints all over the world by either investing in resources for its future or buying stakes in the successful enterprises of today.

There are still understandable concerns about sustainability and endurance. Can China achieve all its goals while complying with international rules? Can it save its economy from the consequences of an increasingly ageing population? The next few years will likely shed some light on this.

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Asia

Google to Open Artificial Intelligence Centre in China

 2 min read / 

Google AI China

Google will be opening its first artificial intelligence (AI) research centre in China, despite many of its services being blocked there.

Fei-Fei Li, Chief Scientist of Google Cloud, said:

“I believe AI and its benefits have no borders. Whether a breakthrough occurs in Silicon Valley, Beijing or anywhere else, it has the potential to make everyone’s life better for the entire world. As an AI first company, this is an important part of our collective mission. And we want to work with the best AI talent, wherever that talent is, to achieve it.”

The research centre will focus on basic AI research, and will consist of a team in Beijing, who will be supported by Google China’s engineering teams.

Google’s search engine and its Gmail are banned in China. However, the country has 730 million internet users, making the market too large to ignore.

Google is not the only tech giant facing restrictions in China. Facebook is also banned, while Apple’ App Store has been subject to censorship. In order to comply with government requests, Apple removed many popular messaging and virtual private network (VPN) apps from its App Store in China earlier on this year.

China has recently announced plans to develop artificial intelligence, and wants to catch up with the US. However, human rights groups are concerned by China’s use of artificial intelligence to monitor its own citizens.

Keep reading |  2 min read

Asia

Trump’s Jerusalem Declaration: What Are Its Impacts?

 8 min read / 

Trump Jerusalem

‘Therefore, I have determined that it is time to officially recognize Jerusalem as the capital of Israel.’

President Donald Trump has further instructed the State Department to begin the process of moving its embassy to Jerusalem from Tel Aviv, with Rex Tillerson also engaging other countries to join in relocating.

In yet another bombshell, the President of the United States unleashed a wave of condemnation across the world. With the obvious exception of Israel, leaders left and right have rushed in to accuse Mr Trump of exacerbating existing tensions within the region; British Prime Minister Theresa May called it ‘unhelpful in terms of prospects for peace in the region,’ and UN Secretary-General Antonio Guterres deemed it as, ‘a moment of great anxiety.’

Palestinian authorities were outraged, with calls for another intifada to take place. The response by their Arab neighbours has seemingly been in similar vein. At the time of writing, protests have already broken out, with scores of Palestinians injured in clashes with Israeli troops across the West Bank and the Gaza Strip, and one fatally shot dead as of Friday.

The Multifaceted Aspects of Trump’s Move

There are a number of dimensions to consider when examining the implications of Trump’s latest move, and to simply label it as populist policymaking would not do it justice.

In that same speech, he talked about how he was a President that was finally ‘delivering’ in the elusive search for lasting Israeli-Palestinian peace where his predecessors had seemingly failed to do so for two decades. This self-aggrandizing is not new and has been characteristic of his presidency.

Yet, it must be noted that Trump is delivering – not peace and reconciliation, but on a campaign promise he had made. Trump is a charismatic showman, but even more so a stubborn politician. This move was made against th counsel of both Rex Tillerson, his foreign secretary, and defence secretary James Mattis, in favour of keeping a promise he had made to the American Israel Public Affairs Committee back in March of 2016.

As highlighted in the New York Times, Sheldon Adelson, a pro-Israel casino billionaire, is close to Trump and donated an estimated $25m to his campaign.

In fact, Mr Adelson serves as the single largest political donor not only to the Republican Party, but between both major parties, forking out millions in both 2012 and 2016. In addition to Mr Adelson and Jewish lobbying arms are the evangelical Christian groups that made switching to Jerusalem a top priority among their influential ranks. The numbers speak: in a 2014 Pew Survey, a staggering 82% of evangelicals were of the opinion that Israel was the land given by God to the Jews, with less than half of American Jews sharing the same sentiment.

John Hagee, leader of the Christians United for Israel, spoke of how, in each meeting with Trump and his Vice President Mike Pence, the embassy’s relocation to Jerusalem was brought up. Earlier this year, Pence, speaking at the Hagee’s group’s annual summit, described how the issue of moving the embassy was not an issue of how, but of when.

Trump’s move is aided further by the aforementioned Arab neighbours. To assume that the relocation would harm relations between the US and its Arab allies would be superficial, to say the least. It should be noted that the most important group of allies – Egypt, Saudi Arabia and the United Arab Emirates – are united with Israel, and by extension the US, on a number of key issues. These include the mutual belief of Iran being the region’s most dangerous destabilizing force, along with the acknowledgement of the Muslim Brotherhood as a terrorist group.

Saudi Arabia stands as the most peculiar case. As the birthplace of Islam and the location of the two of the three holiest Islamic shrines (in Mecca and Medina), Saudi Arabia sees itself as the custodian of the religion; the de facto guardian of Muslims across the globe. However, symbolism gives way to a ruthless pragmatism, spearheaded by the ambitious Crown Prince Mohammed Bin Salman.

Bin Salman, whose recent top-down anti-corruption measures have swayed public opinion in his favour, is close to Jared Kushner, Trump’s son-in-law. Adding to that is the alleged Saudi proposal, which, as reported by the Times, would lead to Palestine accepting limited sovereignty and a total forfeiture of Jerusalem. This, in effect, draws the Saudi regime close to Israel and the most anti-Islam administration in US history.

Are Arab Countries Indifferent?

Yet the current situation serves as a further reminder that the majority of leadership in the Arab world are, admittedly, indifferent to the Palestinian grievances. It is not aided by the status of these regimes – they are mostly unelected autocratic monarchies and thus do not reflect the will of the people. Further adding to that is how the Saudis’ onslaught on Yemen has further made a farce of any genuine Arab unity. A humanitarian crisis affecting millions of (mostly Muslims) is being instigated by the self-professed protector of all Muslims.

It would be naïve to neglect the Arab populaces in this discussion. Unlike their leaders who limit Israel-Palestine to rhetoric, the common Arab continues to see Palestine as an important symbol – representing decades of oppression, betrayal, and disunity. These same feelings form the foundations for extremism to be nurtured. Trump’s move reignites Palestine as a rallying cry for Muslims, who perceive his administration as being openly at war with Muslims.

Provocative populist nationalism serves its purpose in the short run, yet in the long run, especially in a region as volatile as the Middle East, it harbours even more anti-American resentment. Couple this latest move with Trump’s proposed travel ban, and the sentiment among Muslims is justified.

Terror groups, aided by social media’s ever-increasing role, prey exactly on people who are disillusioned and disheartened. The Islamic State, it must be noted, is far from being defeated, and this latest measure acts as a gift for recruiters with which to radicalise unsuspecting young men and women.

Extremist Islamic parties will also be in ‘celebratory’ mood, with those in US ally Pakistan being of particular importance. Designated terror group Laskar-e-Taiba’s (LET) founder Hafiz Muhammad Saeed (accused of terrorist attacks in India) was recently released, and has set his eye on national elections.

Terrorist groups based in Kashmir have called upon lone wolves to attack American and Israeli embassies around the world as a result of this, with the Gaza-based Al Tawheed Brigades firing rockets at Israel. Pro-IS media group Tarjuman al-Asawirti described how the US understood only the language of bullets, car bombs, IEDs and the slitting of throats.’

Exacerbating this situation is the lack of diplomats on hand skilled enough to mitigate the fallout from this, though it must be considered that a long-term strategy hasn’t exactly been characteristic of the Trump administration, at least not in foreign policy. Fadah Pandith, former special representative to Muslim Communities at the State Department, questioned the timing of Trump’s latest move-right before Christmas-and describes how it exposed Americans to greater dangers.

The Implications of the Decision

What does this pronouncement? Just another macho publicity stunt? Detractions aside, there is a positive element in Trump’s latest decision. Formal recognition of Jerusalem as Israel’s capital by the US to Israel will put the former in a position of greater bargaining. This bargaining can include asking considerable concessions on part of the Israelis.

As for the Palestinians, this latest development, according to Emile Nakhleh, former CIA Senior Intelligence Service member, can hopefully act as a jolt for the Palestinian leadership. Hamas has proven to be an ineffective governing body, whilst the Palestinian Authority (PA) has long been mired in rampant corruption.

Their legitimacies are now being threatened and, in the face of rapid erosion, this latest move by the US can help galvanize the need to speed up peace talks, contrary to assumptions that it was the final nail in the coffin. This is the scenario desired by Trump, but it is only wishful thinking.

In the long run, however, it must be noted that nuance and compromise are central towards preventing tensions from escalating. Trump’s announcement has opened the floodgates to a number of speculations on whether there will be another intifada and, more importantly, on whether the two-state solution is still viable. The latter notion has gained traction recently, with Palestinian politicians now expressing interest in a one-state solution instead.

Conclusion

Yet this may be, again, unrealistic. Gaith al-Omari, a former adviser to the PA, states how these are empty threats, and that a two-state solution must persevere, and will continue to do so. The bottom line is that the US will still have a significant role to play in Israel-Palestine-the lingering question is how significant it will be.

Most importantly, the solution drawn must ensure that it does not leave one side gloating, and the other humiliated and disgruntled, which this latest move has clearly been unable to prevent. The Israel-Palestine conflict will continue to fester and ruin the lives of millions in the absence of compromise and understanding.

Keep reading |  8 min read

Asia

Gandhi Wins Congress Leadership

Gandhi Congress

Rahul Gandhi faced no challengers in the race to succeed his mother, Sonia, as leader of India’s Congress Party.

Gandhi is the fourth generation of India’s Nehru-Gandhi dynasty and has been destined from birth to one day head India’s Congress party. However, the 47-year-old has an uphill battle if he is ever to follow in his predecessors’ footsteps and win the Indian premiership. India’s prime minister, Narendra Modi, is the country’s most internationally visible prime minister for a generation and cemented his position earlier this year by winning various state elections. Accordingly, the relatively inexperienced Gandhi will need more than his good name to unseat Modi and his BJP.

Keep reading |  1 min read

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