China’s economic growth over the past few decades has impressed the world. But the world’s second largest economy now faces a difficult transformation: from relying on exports and investments to developing domestic demand. That’s not easy. Government-led stimulus is only a temporary solution and only looked reasonable in the first few years after the recent global financial crisis. In fact, the main problem facing the Chinese economy has been the weak demand in domestic market which manifested clearly in 2006, and became more obvious when growth slowed down.
China’s home loan market reached $539 billion in the first nine months of 2016, more than double the same period in 2015. Based on figures from Ehomeday, Shanghai’s second-hand home price index rose by 27.82% year-on-year on October 2016. In Q4 2016, the skyrocketing home prices slowed across the country due to tighter government restrictions, but nevertheless, 2016 witnessed an astonishing 19% overall increase in home prices. In this edition of China Data, we bring you the latest numbers from China related to state-owned enterprises reform, China’s export slowdown, outbound tourism, Dalian Wanda’s new studio complex and more.
In China, while state-owned enterprises dominate the monopoly industries like petroleum and telecom, the country’s private economy is still the major source for growth in production, employment and exports. Private companies are very sensitive to market changes: When profit margins shrink, they will jump out quickly. Expectations are low while the Chinese economy is under the ‘New Normal’, but the government is still concerned about private investment stagnation. The top economic agency has created a work team to look into the problem and made 60 proposals to solve the slow-down issue. But will top-down methods work?
Over the past two decades, China’s urban population growth has been higher than in the rest Asia or the world as a whole. Young people are migrating to cities, leaving the elderly and children back home on the farm. So as manufacturing and urban life took off, catapulting China to world-power status, rural China and farming lagged behind. Roughly 86% of farms in China were only 1.6 acres, a tiny fraction of the size of the average 441-acre US industrialized farm and most of the work on these small farms is done by hand by an increasingly elderly population of farmers who now average over 50 years old. But that is starting to change.
China is exporting its high-speed rail to the world. In Turkey, China helped link the capital, Ankara, with the largest city, Istanbul. In Indonesia, construction on the Jakarta-Bandung high-speed railway line will begin this year. In 2016, the government also announced that it will build a high-speed railway to connect Singapore with the Malaysian capital of Kuala Lumpur. Domestically speaking, China has secured the leading position. Its network, already more than 20,000 km and still growing, is longer than the rest of the world’s high-speed rail tracks combined. Now China is targeting the overseas market for economic and political reasons.
The Chinese economy faces some serious problems, including a slowing GDP growth, environmental degradation and financial disequilibrium. According to Larry Summers, former Treasury Secretary in the Clinton administration, there are some specific solutions, such as making sure that opportunities for children are the same regardless of where in China and to whom they are born, making sure that the success of enterprises depends on the quality of what they sell and taxes are collected in a fair way and, finally, making sure that those who lead enterprises and communities do so for the benefit of their stakeholders.
Over the past 25 years, China has become the world’s preeminent manufacturer, churning out everything from running shoes to Apple products. Powering that ascent was heavy foreign direct investment combined with a seemingly inexhaustible pool of cheap labor. But now, as the Chinese economy slows, wages rise and the workforce atrophies, the decades-long manufacturing boom may be ending. To help deliver China from industrial decline, the Chinese leadership is betting on automation. However for Beijing to become the world’s robotic leader, there is an even more complex issue behind updating robotic technology: how to handle the displacement of large numbers of Chinese workers?
One day in October, 2015, a group of disgruntled investors gathered in Beijing to lodge a complaint: they had bought so-called wealth management products from a state-owned guarantor backed company that managed nearly $8 billion in assets, and which had collapsed later. Such defaults have been uncommon in China’s wealth management product space, but the now-gargantuan industry may pose a large risk to China’s financial system. Many risky aspects of the wealth management products industry make people worry about the possibility of a chain reaction similar to the 2008 financial crisis, when the US mortgage market buckled under similar strains.
Optimism for Chinese firms is increasing. As they’re making money, they also face different issues. The CKGSB Business Conditions Index posted a mark of 60.8 in November, up from October’s 58.5. This shows that for the survey’s sample firms, of which the majority is relatively successful in China, the next six months are viewed with increased optimism. The CKGSB BCI comprises four sub-indices. Of these, corporate sales fell slightly from 75.4 to 74.0, while corporate profits rose from 57.4 to 61.8. The fact that both of these indices are both well above the confidence threshold of 50 shows that company prospects are improving.
Over 120 million Chinese went abroad and spent over $104.5 billion in 2015 and more are projected for 2016. But for young Chinese people, their spending isn’t all about shopping in tax-free shops. As Leo Lin Song, chief of staff of TripAdvisor says, Chinese travelers are becoming more sophisticated: they’re reaching to further places and want to have more distinct cultural experience and not afraid to explore the unknown. Yet compared to western travelers, Chinese tourists are still special. They like to read pictures and need clear guidance—and that’s where TripAdvisor chips in.