10 rea­sons to be op­ti­mistic

China Daily (Canada) - - ANALYSIS -

Here we ex­am­ine 10 of the key strengths of the Chi­nese econ­omy from its abil­ity to re­bal­ance and its highly ed­u­cated work­force to the strength of its bur­geon­ing pri­vate sec­tor.

China’s GDP growth of 6.9 per­cent in 2015 was one of the fastest of any ma­jor econ­omy in the world. Al­though it was the slow­est an­nual rate in­crease in 25 years, it was sig­nif­i­cantly greater than that of ma­jor Euro­pean coun­tries (Ger­many 2.1 per­cent, France 1.5 per­cent and the UK 1.9 per­cent) and the US’ 1.8 per­cent.

The Chi­nese govern­ment is likely to set it­self the goal in the up­com­ing Five-Year Plan (2016-20) to be­come a “mod­er­ately well-off so­ci­ety” and join the high-in­come club of na­tions by 2020, which will re­quire at least 6.5 per­cent growth ev­ery year for the rest of the decade.

While many still view China as the work­shop of the world, pro­duc­ing in­ex­pen­sive man­u­fac­tured goods, it is a very out­dated pic­ture.

The econ­omy has al­ready sig­nif­i­cantly re­bal­anced, with ser­vices, high-tech in­dus­tries and ad­vanced man­u­fac­tur­ing be­com­ing new en­gines of growth.

Ser­vices now ac­count for 51 per­cent of GDP, com­pared with 44 per­cent in 2011, and they grew at 8.3 per­cent last year.

The growth of ser­vices is also a key to boost­ing con­sump­tion, an­other vi­tal as­pect of re­bal­anc­ing the econ­omy. Per capita dis­pos­able in­come of Chi­nese grew 7.4 per­cent last year.

The fast emerg­ing highly skilled qual­ity of China’s work­force is one of the real strengths of the econ­omy.

While the typ­i­cal Chi­nese worker is of­ten per­ceived to toil in a sweat­shop, the fact is that China, has some 100 mil­lion col­lege grad­u­ates, an in­creas­ingly large num­ber of those ed­u­cated at top univer­si­ties around the world, and is on tar­get to have 300 mil­lion by 2030.

There is also a huge em­pha­sis on vo­ca­tional train­ing, with Ger­many seen as a role model.

The govern­ment wants to in­crease the num­ber of vo­ca­tional places from the cur­rent 29.34 mil­lion stu­dents by a third to around 38.3 mil­lion by 2020.

Some­times ac­cused of build­ing roads to nowhere, China in fact has some of the most ad­vanced in­fra­struc­ture in the world.

China in­vested some 800 bil­lion yuan ($123 bil­lion) in its rail­ways in 2015 and now has 19,000 km of high-speed rail, more than any other coun­try. The Chi­nese govern­ment is likely to step up in­fra­struc­ture spend­ing this year be­liev­ing that mod­ern trans­port net­works will un­der­pin growth.

One of the key strengths of the Chi­nese econ­omy is its fi­nan­cial fire­power. It had $3.3 tril­lion of for­eign ex­change re­serves by the end of De­cem­ber, the largest arse­nal of any coun­try.

Chi­nese fi­nan­cial au­thor­i­ties were able to de­ploy th­ese re­serves when the yuan came un­der pres­sure af­ter an ad­just­ment to the ex­change rate mech­a­nism last year.

Al­though there have been con­cerns about their re­cent de­ple­tion — down $513 bil­lion in 2015 — they re­main a sub­stan­tial war chest and in­sur­ance pol­icy to cope with most con­tin­gen­cies.

China’s pri­vate sec­tor

is grow­ing fast. The sec­tor is now one of the most vi­brant in the world and makes up some 60 per­cent of GDP. Rev­enues of the non-state sec­tor in the econ­omy have risen 18 fold since 2000, ac­cord­ing to the Na­tional Bureau of Sta­tis­tics.

Some of China’s pri­vate sec­tor ac­tiv­ity re­mains un­der the radar, but Chi­nese com­pa­nies go­ing out and mak­ing ac­qui­si­tions in Europe and the US could soon be­come one of the big­gest global trends.

China has the high­est num­ber of startup busi­nesses in the world.

Ac­cord­ing to re­search by ac­coun­tants UHY Hacker Young, the num­ber of new busi­nesses launched in 2014 was 1.6 mil­lion, 98 per­cent more than in 2010. The growth in startup busi­nesses in the US in the same year was just 11 per­cent.

Chi­nese Vice- Pres­i­dent Li Yuan­chao said in Davos, Switzer­land, that there were now 2,300 en­tre­pre­neur­ial spa­ces and 2,500 in­cu­ba­tors for star­tups across China, and th­ese fa­cil­i­ties were grow­ing by 20 per­cent a year.

The govern­ment launched a $6.5 bil­lion ven­ture cap­i­tal fund for emerg­ing in­dus­try start-ups last year.

The rate of in­fla­tion, par­tic­u­larly that of food prices and specif­i­cally pork (a key el­e­ment of most Chi­nese di­ets) has tra­di­tion­ally been a key in­di­ca­tor of the health of the econ­omy.

Al­though China’s con­sumer price in­dex rose for a third con­sec­u­tive month in Jan­uary, the rise of 1.8 per­cent year-on-year, up from 1.6 per­cent in De­cem­ber, was a far cry from lev­els seen be­fore the fi­nan­cial cri­sis.

When in­fla­tion hit an 11-year high of 8.7 per­cent in Fe­bru­ary 2008, its ef­fects were se­vere on house­hold bud­gets.

One of the tra­di­tional fears about a slow­ing econ­omy was its po­ten­tial im­pact on em­ploy­ment.

There no longer ap­pears to be a di­rect cor­re­la­tion be­tween growth and jobs, largely be­cause of de­mo­graph­ics and China’s de­clin­ing work­force.

The na­tional un­em­ploy­ment rate was just 4.99 per­cent in Jan­uary, one of the low­est lev­els among lead­ing economies. There were 13.12 mil­lion new jobs cre­ated for ur­ban res­i­dents in 2015, ex­ceed­ing the govern­ment’s tar­get.

China’s Belt and Road Ini­tia­tive, set out by Chi­nese Pres­i­dent Xi Jin­ping in 2013, re­mains one of the govern­ment’s key strate­gies.

Through the ini­tia­tive the govern­ment hopes to foster trade be­tween the largely land­locked cen­tral and west of China with cen­tral Asia and Europe. The New Silk Road Eco­nomic Belt could lead to a much big­ger com­mer­cial re­la­tion­ship be­tween China and the EU.

The ini­tia­tive also in­cludes de­vel­op­ing a Mar­itime Silk Road con­nect­ing China with South­east Asian and South Asian coun­tries and Africa.


A job fair in Shan­dong prov­ince on Feb 18. Since the Chi­nese New Year the job mar­ket has been ac­tive.

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