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.
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.
Bitcoin, a virtual currency traded online, was not invented in China, yet China is where 80% of the virtual “coins” are minted and 90% of the transactions are made. Currently, the global bitcoin market amounts to some $14.5 billion, roughly the same amount of money as Apple’s European back taxes. If the virtual currency’s popularity continues to grow, decisions made by Chinese investors and regulators may determine whether bitcoin fades to a historical footnote, like Napster or the eight-track tape, or becomes the silicon cornerstone of a new global financial order. A combination of factors thrust China into this decisive role.
Bill Bishop, co-founder of the stock market news website MarketWatch and author of Sinocism, talks about how China’s relationship with the world has changed. In this interview, he shares insights on China’s ascendance to second-largest economy in the world, as well as some of the serious economic challenges it faces today, such as an aging society and rising debt, and the current backlash against globalization. But along with that, he also discusses the many bright spots–the emerging internet economy, for example–and the hazards of getting caught up in what can be a biased and negative news cycle mentality.
A fundamental generational change in attitude is happening: business people in China have started to question lavish banquets with too much bajiu, and new approaches to health and wellness are coming into vogue—particularly among the young, hip and urban. Rising with this trend is a multibillion-dollar fitness and food industry. Fitness apps are being downloaded by the tens of millions, and gyms are popping up almost everywhere you look in major cities. Market researchers predict that the gym, health and fitness clubs industry is to generate $5.81 billion, and that does not include sales of health food, which seems to be a craze all its own.
Baidu, China’s largest internet search engine, is having a hard time after a college student named Wei Zexi died after mistaking an advertisement on Baidu for an experimental cancer treatment for medically reliable information. Baidu was then accused of being “unethical”, failing to clearly delineate paid advertisements from search results. Months later, the Nasdaq listed company reported its worst quarterly earnings. With the increased competition from domestic players like Tencent and Alibaba and the downward pressure on online advertising, which contributes to over 90% of Baidu’s revenue, it is crucial for Baidu to diversify its business.
One could be forgiven for thinking that after purchasing Uber’s China operations, Didi Chuxing—which now boasts over 300 million users and over 80% of China’s market—would be on easy street. But things are never that simple in the Chinese market. Figures have shown Didi is losing users and drivers. Under strict Chinese local governments’ new policies, Didi may face bigger challenges than Uber China. Meanwhile more people cast doubts over its business model. Boasting a sharing economy model, car-pooling, the company now relies more on providing car-hailing services with prices lower than taxis to maintain its scale. Once the subsidies withdrew, users walk away.
Live streaming in China is not new. Even back in 2005 there were live streaming businesses based on the PC, but it was not until 2014 that this industry really started to take off in the Chinese market, as China’s almost 700 million internet users became aware that mobile live-streaming is fun and can even be profitable. China’s internet giant companies have long recognized that live streaming is going to be the new portal to bring in traffic, so just like their competition in other battle fields, Baidu, Tencent and Alibaba have spread their tentacles to live streaming and mapped out their respective businesses.