China’s economy is facing many problems that are cyclical and also structural. Some economists believe China reached the Lewis Turning Point six years ago, where the growth benefits of rural-to-urban migration dried up and wage costs started to escalate. The growth of the Chinese economy relied very much on its cheap labor—a competitive advantage that has been exhausted. Simply put, “China has come to the end of the period of easy gains in GDP.” It faces two possible paths ahead: the hard road of structural reform and painful consolidation, and the easy road of fiscal and monetary stimulus leading inevitably to further problems along the way.
The Chinese currency’s sharp fall last August has put the spotlight on the country’s foreign exchange reserves that have been dropping, increasing the risk of capital outflows. The falling reserves are not only a result of China’s transition from investment and export-led growth to rising domestic consumption, but also a reflection of the-slower-than-expected economic growth. Meanwhile, more and more wealthy Chinese are moving their assets abroad amid a lackluster domestic environment and the anti-graft crackdown. This is significant for the Chinese economy because the falling forex reserves have led to monetary policy restrictions. What can be possibly done to stabilize capital flows?
The world’s largest restaurant chain is gearing up to do even more in China. In a bid to make China its second-largest market globally, fast food company McDonald’s is set to open 1,250 new outlets in China over the next five years. Despite recent troubles over food safety in China, McDonald’s continues to be gung ho about its prospects in the country. Even concerns over a slowing economy aren’t dampening is spirits. McDonald’s is betting on population growth and rising urbanization to give sales a boost. In this edition of China Data, we bring you the latest numbers from China: from Ronald McDonald’s China plans to wind power and pork prices in the country.
Having delayed serious structural reforms, China faces eye-watering overcapacity in heavy industries. Steel production volume is more than double that of the next four leading producers combined: Japan, India, the United States and Russia. Aluminum production capacity reached 40 million tons last year, exceeding global consumption by 9 million tons. Most remarkably, between 2011 and 2013 China produced more cement than the US did during the entire 20th century—6.6 gigatons, compared to the US’s 4.5. What can China possibly do about this excess capacity that is weighing on the balance sheets of debt-ridden firms reeling from China’s economic slowdown?
After 37 long years, China finally abandoned the one-child policy and caught many observers off-guard. The two-child policy, passed by the Chinese legislature in December last year, is according to Chinese authorities, “intended to balance population development and address the challenge of an ageing population”. Their projection that the abolition of the policy would yield a 0.5 percentage point boost in economic growth over the long term, without specifying a time frame, suggests that there were economic motivations behind the end of the one-child policy. But whether it will really deliver a boost in growth for the economy is an open question.
The days of double-digit growth in China are long gone now. And as China shifts to a new economic model, the term ‘the New Normal’ is often used to describe this supposedly more sustainable economic growth. The consensus is that the New Normal will usher in a steadier, stronger, more sustainable economy led by consumption and services. But when you break it down to a granular level, what does the term really mean? More importantly, what does the New Normal mean for the level of economic growth being pursued in China? What implications does it have for rebalancing the economy and different industries?
Dating back to 1953, China’s system of Five-Year Plans has long been dismissed as anachronistic, but it remains crucial to guidance of the economy. Five-Year Plans occupy a central place in China’s complex system of governance. For just as China’s economy has reformed and adapted in the last 37 years, so too has the planning framework. There are clear signs that planning will remain an indispensable component of Chinese economic and political development for years to come.
China’s economic growth has dropped to a 24-year low. There’s not much room for further decline as Beijing has reaffirmed its goal of doubling the GDP between 2010 and 2020. This means growth of 6.5% a year. The conventional methods of boosting growth are no longer deemed dependable. Beijing is now pinning its hopes on unlocking another round of “economic dividends” by carrying out reforms to make the entire system more market-driven. But can China carry out economic transformation without hurting growth? We ask Anthony Saich, Director of the Ash Center for Democratic Governance and Innovation at Harvard Kennedy School.
In China a healthy gaming culture centered around PC games, and more recently, mobile games, is thriving. Despite a historic decision by China’s Ministry of Culture in January 2014 to lift its 14-year ban on video game consoles, foreign console companies Sony and Microsoft have largely failed to woo China’s 517 million gamers. In July 2015, Niko Partners estimated that fewer than 550,000 of Sony Playstation 4 and Microsoft Xbox One, combined, will be sold in China by the end of the year, a pittance compared to the profits made by both PC and mobile gaming. Both companies are trying to make headway in this potentially fruitful market.
If there’s one activity that unites China’s subway commuters, it’s huddling over their smartphone screens to watch the latest local, South Korean or Western TV shows downloaded or streamed from one of China’s many video websites. They’re part of a wider trend where more and more consumers are heading online to find their entertainment, and government statistics show music and video are the fourth and fifth most popular uses for the internet, respectively. But for all the prodigious growth, monetizing the interest has been a different matter. That is largely due to a pervasive culture of free, on-demand content, but that may be set to change.