Sunday Star-Times

Trends changing the face of China

As China takes a greater place on the world stage, it faces some unique challenges. Jeremy Rees reports.


China, as everyone knows, is growing, important and a big focus of our economy. It is our second-largest trading partner, with two-way trade valued at $22 billion in 2016 (though, as former Foreign Minister Sir Don McKinnon pointed out last year, we are only China’s 43rd largest trading partner).

The power of China has risen while the US is grappling with Donald Trump’s ‘‘America first’’ policies.

There is no doubt China is important to us, so we have scanned the world’s business analysts to bring you eight things to think about with China in 2018.

We settled on eight trends because it’s a lucky number for the Chinese.

1. China’s own Bay Area (KPMG/McKinsey)

Dwarfing the US’s San Francisco Bay Area and Silicon Valley, China’s version seeks to harness the power of Hong Kong, Guangzhou, Shenzen, Macao and seven other cities in Guangdong province.

It is an area of 70 million people, accounting for 13 percent of China’s total GDP and economical­ly twice the size of the US Bay Area.

Last year, Beijing announced plans to further integrate the area as an innovation hub, coupling technology start-ups with internatio­nal financial resources.

The area is now pulling in ambitious workers from around China and has a GDP per capita of more than US$20,000, more than double the rest of the country.

What is remarkable is that Shenzhen, now one of China’s megacities of 12 million, was just a market town of 30,000 souls in 1980, when Deng Xiaoping designated it the site of China’s first Special Economic Zone.

2. US-China Trade War (Financial Times)

On the stump, Trump promised action against China. In his first year nothing materialis­ed as he and Xi Jinping grappled with a nuclear-armed North Korea.

But now the White House is giving off all kinds of signals about grappling with China over trade.

At issue is less the problem of a trade deficit and more that China is demanding that companies hand over their intellectu­al property if they want to invest in China.

China’s market of a billion people is tempting but, equally, American innovation is hard-won.

Many commentato­rs, including the Financial Times, are picking the two sides will edge towards a trade war, despite the fact their economies are increasing­ly intertwine­d.

3. The Post-90s Generation (McKinsey Consumer Reports)

This generation of Chinese has grown up in a country virtually unknown to their parents and grandparen­ts; it is peaceful, growing, in some places wealthy, open to the rest of the world and able to get access to new technology.

They have never known a China which is not growing every year.

McKinsey consumer interviews have found they are more likely to want a balanced life, different to their forebears who focused on survival and work.

This generation – around 16 per cent of China, but accounting for more than 20 per cent of its consumptio­n – is not hung up on wanting overseas brands or indeed Chinese brands.

They would rather have good quality and good value for money rather than worrying about brand origin.

Downsides? They may be getting a little fat. Research show 30 per cent of Chinese adults are overweight, around 300 million people.

So they are fuelling a fitness trend, buying exercise gear, signing up to the gym, preferring healthy food and going to the doctor more often.

4. Older Workers (Deutsche Bank/Bloomberg)

It is well-known that China’s population is ageing as the effects of the one-child policy ripples through the country. What is less known are some of the effects of the imbalance.

Deutsche Bank says that, like post-war Korea and Japan, China gained by having a small share of young and old people as it boomed, meaning it had a plentiful supply of workers with fewer dependents.

But that demographi­c dividend came to an end in 2010 as the number of dependents began to rise rapidly in an ageing population with a much lower per capita income than Korea or Japan.

Another problem, says Bloomberg, is that an ageing working population is inherently less innovative. Workers move out of the age when they are ready to take risks (20s and 30s) and into the comfortabl­e age when they don’t (50s).

In China, of course, numbers are huge; there are still an awful lot of innovative 20-year-olds.

So the question for 2018 is, which prevails: raw numbers or the dwindling percentage of key demographi­cs?

5. Innovation (UBS)

The counter-argument, from UBS, is that China has set its mind – and its people – towards innovation, so innovate it will.

China has made much of its plans to become a giant in high tech. Beijing’s ‘‘Made in China 2025’’ strategy aims to make it the technology leader in 10 sectors within seven years, including robotics, artificial intelligen­ce, high-tech shipping, power equipment, medicine and modern transport.

Beijing’s aim is to steadily rebalance China away from heavy industry to consumer spending and from being a producer of other countries’ technology to producing its own.

In a nutshell, Beijing wants to pivot China from ‘‘Made in China’’ to ‘‘Invented in China’’.

China now has four of the top 10 biggest internet and technology companies around the world – Baidu, Alibaba, Tencent and Xiaomi – and its own Silicon Valley around booming Shenzhen which is attracting local and American start-ups.

It also now accounts for something around 40 percent of the world’s e-commerce transactio­ns.

6. Opposition (A T Kearney


A T Kearney, a global consulting agency, argues that this may be the year when Chinese foreign investment overseas runs headlong into sustained political opposition.

Chinese firms invested rapidly overseas through 2016 and into 2017, then many came under scrutiny from Beijing which tightened regulation­s.

Beijing wants to direct more investment towards its vaunted Belt and Road initiative instead, building seaways and land transport hubs to link the world to China’s markets.

Kearney argues: ‘‘Government­s around the world – particular­ly those in developed markets with more attractive technology company targets – will find themselves in direct conflict with the new Chinese outbound investment guidelines as they seek to guard key domestic industries.’’

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 ?? KEVIN FRAYER/GETTY ?? Many workers who migrate to Chinese cities say it has become much harder to find work in the last year.
KEVIN FRAYER/GETTY Many workers who migrate to Chinese cities say it has become much harder to find work in the last year.
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