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China and the Next Economy

By Rohit Talwar, Steve Wells, and Alexandra Whittington

China has made amazing economic strides in the space of little more than a single generation. These dramatic improvements have set the bar quite high for the country’s future. Most notably, China’s pursuit of global AI leadership is unparalleled: the country has committed over US$400Bn to AI investments at the national, regional, and local level with the intention of building a US$1Tn AI industry by 2030.(1) In this article we ask, what other plans and proposals could shape China’s increasing economic influence?

Belt and Road Initiative

Comprising a ‘belt’ of overland corridors and a maritime ‘road’ of shipping lanes, a 30-year, US$10Tn+ project will drive infrastructure and economic development along its path through Europe, Asia, the Middle East, Latin America and Africa.(2) The project could ultimately touch 152 countries, 65% of the world’s population, and 40% of global GDP.(3) As part of the program of work, China is already carrying out or planning construction projects in more than 60 countries with an investment of more than $1Tn. Alongside the building of extensive infrastructure across the areas it covers, the intention is to enable a widespread process of financial inclusion. As well as supporting China’s global economic development, the initiative provides a vehicle for ever larger economic and political influence and a more pivotal role for Chinese international diplomacy.(4)

Overseas Acquisitions

Chinese overseas investment is now seen as a critical growth driver. Investment patterns are shifting, and official Chinese government figures show that overseas investment by Chinese businesses peaked at US$196.15Bn in 2016, declining to US$158.29 in 2017.(5) Full figures for 2018 are not available yet but indications show a continued decline with major reductions of investment into the USA and UK. This contrasts with significant growth of investment into nations such as Canada, Sweden, and Germany, and projects along the Belt and Road corridors.

Investment may continue to slow in the short term due to China’s domestic controls and restrictions on Chinese ownership by an increasing number of nations. However, in the longer term, the growth of China, its investment potential, the Belt and Road Initiative, and the appetite of Chinese investors could see a quadrupling of the acquisition of foreign companies by Chinese firms over the next two decades.

Expanding Global Value Chains

The growth of commerce and the expansion of cross-border trading links in Asia, and more latterly Africa, will be further strengthened by infrastructure enhancements – including those of China’s Belt and road Initiative, by government sectoral funding, and rising education and skill levels.(6) Other key enablers include favourable tariffs, rising domestic spending and foreign direct investment (FDI) from around the world, cheaper technology, lower transportation costs, and development of enabling services such as accounting, consulting, and banking.(7)

China’s Future

Estimates suggest we could see 130% cumulative global GDP growth between 2016 and 2050, much of which is expected to come from developing nations. Six of the seven largest economies in the world are projected to be emerging economies in 2050, led by China.(8)

Continued development of international production and trade networks, the spread of investment, and a rising standard of living may stimulate future waves of prosperity, economic growth, and employment in China. These waves in turn may further strengthen China’s global influence for the foreseeable future.

Social Trends Forming the Future of China

The Chinese consumer is an attractive and lucrative target for many businesses. No wonder, as China is projected to have a 20% share of world GDP at Purchasing Power Parity (PPP) by 2050.(9) Any useful strategy in this area must incorporate an understanding of more than just the economic characteristics of the Chinese consumer. This article highlights some of the more interesting social trends and innovations transforming the Chinese consumer profile.

The Middle-Class

Based on current trends, 90% of the next billion entrants into the global middle class are projected be Asian (380m Indian, 350m Chinese, 210m other Asians) elevating the Asian middle class towards 65% of the global middle-class population by 2030.(10) This will impact international business flows and further increase the economic and geopolitical influence of Asia. China stands out as the major player in the region’s future in this regard.

Tourism

One by-product of the increasing disposable income in the region is the rise of Chinese tourism. Chinese tourists overseas spent $261.1bn in 2016 whereas Americans spent $123.6bn. Just 7% of Chinese citizens (99 million people) possess a passport, compared to around 40% of Americans, and 76% of Britons.(11) Therefore, the percentage of Chinese citizens with passports is likely to rise, enabling lucrative growth in Chinese outbound tourism.

Global Cities

Chinese cities will be at the heart of a radical shift eastwards of the urban centres of global economic gravity by 2030. Driven by burgeoning urban populations and rapid labour productivity growth, 17 Chinese cities are expected to rank in the world’s top 50 by 2030, which is more than North America and four times more than Europe. By 2030, China’s lesser-known mega cities such as Chengdu, Hangzhou, and Wuhan could become as prominent in economic terms as Dallas and Seoul are today.(12)

China’s Social Experiment

One of the most publicised cultural programmes in China today is their social credit system. (13) The program utilizes widespread citizen surveillance to encourage society towards desirable behaviours. Hence, recycling and engaging in charity work help to unlock perks, while those caught jaywalking or smoking in non-designated areas face punishments such as denial of access to certain rail services.  This concept may suggest that Chinese consumers could have a higher threshold of tolerance for a surveillance society compared to western customers.

The Future Consumer

Is it possible to generalize meaningful insights about what customers might want in a decade’s time? Ultimately the future Chinese consumer is as complicated as the society in which he or she resides. Companies crave information and access to this growing demographic, so China’s dynamic society will probably keep trend-watchers busy well into the 2020’s.

 

References :

  1. https://www.cnbc.com/2017/07/21/china-ai-world-leader-by-2030.html
  2. https://chinapower.csis.org/china-belt-and-road-initiative/v
  3. https://www.scmp.com/business/china-business/article/1978396/chinas-one-belt-one-road-plan-covers-more-half-population-75
  4. https://www.worldbank.org/en/topic/regional-integration/brief/belt-and-road-initiative
  5. https://www.cnbc.com/2018/09/28/chinas-overseas-investment-drops-for-the-first-time-on-record.html
  6. http://www.asiascot.com/news/2018/07/26/belt-road-initiative-reshaping-global-value-chain/
  7. https://www.unescap.org/blog/shifting-supply-chains-foreign-direct-investment-likely-to-expand-in-southeast-and-south-asia-in-response-to-trade-war A
  8. https://www.pwc.com/gx/en/issues/economy/the-world-in-2050.html
  9. https://www.pwc.com/gx/en/issues/economy/the-world-in-2050.html
  10. http://oecdobserver.org/news/fullstory.php/aid/3681/An_emerging_middle_class.html
  11. https://www.travelagentcentral.com/running-your-business/unstoppable-rise-chinese-traveller-where-are-they-going-and-what-does-it-mean
  12. https://www.oxfordeconomics.com/Media/Default/landing-pages/cities/OE-cities-summary.pdf
  13. https://www.youtube.com/watch?v=Dkw15LkZ_Kwv

This article was published in FutureScapes. To subscribe, click here.

 

Image: https://pixabay.com/images/id-3222894/ by PrettySleepy2

 

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