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CBBC Insights: Chinese Economy | China’s ‘good growth’ and growing opportunities for UK services

BritCham / CBBC
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By Anatole Pang
Advisor
China-Britain Business Council
 
 
Understanding China’s economy still means going beyond the headline figures
 
Another year, another set of Chinese GDP figures as well as the accompanying scepticism from foreign news outlets. This time, the issue has been inflamed by George Soros’ comments at Davos where he seemed to indicate both that he expected a “hard landing” and, at the same time, that the Chinese government had the capacity to manage the ongoing slowdown. The arguments have begun to become slightly more nuanced, as shown in a recent set of responses to Soros by prominent economic commentators noting, amongst other things, that the reported capital outflow was not quite what it seemed.
 
Aside from the usual debate about the Chinese macro story however, there is a potentially more important set of factors to consider, especially from the perspective of British exporters into the economy. Hidden amongst the rhetoric of overall GDP numbers, and the fact that consumption has risen this year whilst investment has fallen, is a more sanguine piece of evidence: consumption in China has actually been growing at a pretty steady rate for the last few years despite GDP growth slowdown.
 
 
Whilst headline real GDP growth has declined from around 10.0% after the global economic crisis to around 7.0% last year, the consumption portion of overall GDP growth has steadily averaged 4.6% over the same period – culminating with the actual figure of 4.6% for 2015. This means that even if the cynics wish to strip out the investment growth they do not wish to credit, we still have the world’s second largest economy growing at a healthy 3.5% - 5.0% per year of pure, raw consumption – aka “good growth”.
 
This “good growth” alone – the figures for which are in any case more difficult for any government to manipulate – resulted in an annual incremental addition to Chinese buying power of about half a trillion US dollars in 2015, which as a standalone figure sandwiches China neatly between Norway and Austria as the world's 28th largest economy in nominal terms and 27th (just above the Netherlands) at PPP. 
 
 
Most developed countries would be desperate for such numbers, and the evidence of ongoing Chinese consumption is all around us, not least empirically through national trends and events such as this year’s record-setting Singles Day shopping spree. Additional spending power is still growing rapidly year on year, not slowing, something frequently forgotten.
 
Another point which emerged towards the end of last year: despite all the reports about corruption and venality, in some ways China is actually surprisingly equal. Chinese consumption is driven not where high-end exporters like Rolls-Royce can make a living but where standard SMEs selling mass-market products and services can be successful. This can be seen in Credit Suisse’s annual Global Wealth Report which looks at asset distribution rather than income distribution, as is commonly the case. When viewed in such a light, both the bank’s own Gini coefficient calculation, as well as CBBC’s own proxy, show that China ranks somewhere in the middle, well below most comparable emerging markets as well as the United States.
 
 
Whether looking at Credit Suisse’s own asset-based Gini calculation, or our own proxy calculation of mean wealth as a multiple of median wealth, China’s figures are in a reasonable position. This is important because it demonstrates the likely sustainability of Chinese consumption going forward, since it will not be concentrated merely amongst a small elite or even just an urban middle class. The whole of China is going to continue to grow its appetite for what the world – and Britain – has to offer. We are moving beyond the purchase of foreign luxury products into a world where every home is looking to pick the best products for everyday use.
 
Which brings us back to one of CBBC’s key themes: knowing your market. The days when the rising tide of Chinese growth lifted all boats have gone, but for those companies with a vision of what they want to sell and to whom, offering competitive, quality products, the China market continues to offer unrivalled opportunities. More care than ever needs to be taken to localise and adapt but for those who do so the rewards are huge.
 
To find out more, please contact the author: anatole.pang@cbbc.org.cn
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