Not everyone is looking at China’s December Purchasing Managers Index (PMI) of 49.4 as the key signal of the industrial behemoth’s eventual and inevitable decline. [The PMI reflects growth when it’s positive (above 50) and contraction when it’s negative (below 50). China’s monthly PMI marks have been dropping over the past year.] Nor are all analysts insisting that China’s 2015 economic growth of “only” 6.9% is a sure sign of impending economic catastrophe. International observers are contemplating the breadth of the changes China is now implementing, and some have even expressed cautious optimism for the country’s newly emerging internal economies and financial trends.
Contractions Happen
Yes, the world’s manufacturing leader has experienced contractions in its overall production outputs. Over the past five years, China’s economic growth percentages have also been declining. In 2011, the nation’s economy grew by 9.5%; in 2012 its growth fell to 7.8%; 2013 saw another small slowing, with only 7.7% growth, and 2014 registered a growth of 7.3%. In 2015, the government infused billions of yuan into the economy, which appears to have slowed, but not stopped, the economic slump. The 2015 6.9% annual growth factor is the smallest the country has experienced in 25 years.
Economies Shift
At least one commentator is looking at other elements of overall Chinese economic activity to glean a clearer picture of the actual state of the nation’s economic health. Pan Jiancheng, deputy head of the China Economic Monitoring and Analysis Center of the National Bureau of Statistics, notes that, while steel mills and coal mines are reducing their output, the “Chinese Silicon Valley” of Zhongguancun is bustling with steadily increasing activity. HIs office is monitoring the growth among several different sectors of the country’s economic bases, as the nation shifts its reliance from manufacturing to consumption.
Jiancheng’s optimism is shared by the U.S. investment firm Jefferies Group. According to Yu Lei, managing director of the Jefferies’ Group China branch, the country’s economic structure is changing, and an accurate evaluation of its entire economy can no longer be gathered based on traditional industrial indicators. As examples, Lei notes the courier services sector grew 34% to AU $52.59B in 2015; more than 18 billion parcels were delivered, representing a 48% surge over the number of deliveries in 2014. Box office sales for movies climbed over AU $9.42B, almost half again as the sales records of 2014.
Lei goes on to say that a significant factor in the growth seen in China’s consumption economy is the welcoming business climate for small- and mid-sized enterprise. In just the past 18 months, China’s search engine, Baidu and its access to global “Big Data” has enhanced the government’s encouragement of innovation and entrepreneurialism. The country’s invitation to Australia’s services industries, as outlined in the ChAFTA, is another signal that China intends to grow its consumer economy and is welcoming international providers to support that effort.
Consumption Economy is Already Growing
Many of China’s cities are already experiencing substantial growth in the consumer markets as international corporations set up offices, shops and services. Starbucks, which entered the Chinese coffee market in 1999, now has more than 2,000 stores in 100 cities, with plans to open another 1,500 by 2019. Joe Kaeser, CEO of the German industrial giant Siemens, indicated his satisfaction with new opportunities opening up in China, especially considering the challenges within the country’s aging infrastructure. He cites business opportunities in energy management as contributors to his company’s regaining “a lot” of market share. The international accounting firm PricewaterhouseCoopers (PwC) reported that over one-third of global CEO’s consider China the most important place for growth prospects in the next year. It estimates that China’s economic scale will surpass that of the U.S. (currently the world’s largest economy) by the year 2030.
Doing business in China has always presented challenges, especially to off-shore manufacturers. Newly emerging industries and policies are opening new doors into its financial, social and consumer sectors. Give me a call if you’re contemplating taking your enterprise into any of the new markets of the new China.
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