China’s economy added roughly the equivalent of Turkey or Sweden to its GDP last year. More cars were sold in China in 2015 than in the US, Japan, Germany, India and UK combined. Chinese travellers also made 120 million trips abroad, spending $140bn in the process.
Companies like Alibaba, Huawei Technologies, and several of China’s banks, rank among the world’s biggest enterprises. Outbound investment has soared. Chinese companies are staging multi-billion dollar acquisitions around the globe.
Figures such as these are testimony to the sheer size of the Chinese economy. They powerfully illustrate China’s rapid economic evolution over the past three decades. And they underline the fact that despite less-rapid expansion, the country remains an engine of global growth and a must-be market for Australian companies that cater to China’s evolving needs and appetites.
China's 'Belt and Road' infrastructure-spending initiative is fanning demand for investments in urban infrastructure.
Much has been made of the fact that the Chinese economy is expanding at a slower pace than previously. When it comes to China, though, it is important to look beyond short-term volatility and challenges, and not to lose sight of the long-term growth drivers of what is the second-largest economy in the world.
At the end of the day, China is in the midst of a shift towards more sustainable, higher-quality growth. Its economy is moving from “blue-collar” to “open-collar”; from low-tech to high-tech; from rural to urban; from export-focused to domestic consumption-oriented.
In this context, the “new normal” of 6.5-7% annual GDP growth is simply more realistic than the double-digit expansion rates that propelled the first stage of China’s spectacular rise. It is thus a welcome development, rather than an inherently worrying one.
And while economic change and less-rapid expansion mean tougher conditions in some business sectors, China’s transformation is also generating fresh opportunities in others.
Three broad themes stand out: consumption; urbanisation and the “greening” of the economy; and the move towards higher-tech manufacturing. Many of these play to Australia’s strengths, and will bolster the already strong trade ties between the two countries in coming years.
On the consumption front, China’s 1.37 billion inhabitants are still significantly less wealthy than your typical Australian. But HSBC estimates that by 2025, more than 60% of the urban population will classify as “middle class.”
They will increasingly be able to spend more of their income on travel, health or education – the tens of thousands of Chinese who study at Australian schools and universities are testimony to that. And if Australia could increase its share of the outbound Chinese tourism market to 1%, the number of Chinese visitors in 2024 would be 2.4m, or roughly as many visitors as Australia currently gets per year from New Zealand and Europe combined.
China’s healthcare spending is estimated to grow to $1.35tn in 2020 from $480bn in 2011, according to McKinsey, providing new opportunities for Australia’s world-class health professionals as well as its medical research and healthcare infrastructure.
The recent volatility in the Chinese markets has not dented consumers’ willingness to spend. What is more, Chinese shoppers are increasingly wired, mobile, digitally savvy and globally-minded. This has put them within online reach of suppliers from around the globe – including those in Australia.
Meanwhile, China’s urbanisation drive, the government’s determined efforts to “green” the economy, and the “Belt and Road” infrastructure-spending initiative are fanning demand for investments in urban infrastructure, alternative energy and clean transportation.
Australia was included in China’s “Belt and Road” initiative in April, giving Australian companies even more of an opportunity to capitalise on the multi-billion infrastructure spend and anticipated increased trade flows across the more than 60 countries covered by this initiative.
All of this is not to say that China’s policymakers don’t face difficult decisions. Progress won’t always be linear or rapid. After all, the process of rebalancing China’s economy, upgrading its industrial base and injecting more innovation into the economy is complex and cannot be done overnight.
This means Australian businesses and investors who are eager to seize the opportunities arising from China’s rebalancing need to see beyond short-term disruptions. They need to engage with China’s market reforms and capitalise on emerging industry trends and consumption patterns. And they need to be prepared to embrace the slower but higher-quality growth of “new normal” China.
They will also need patience and and a willingness to investigate different routes into the Chinese market. There is no-one-size-fits-all approach to doing business in China and there is no easy path to success.
But over time, those companies that make the right decisions and invest sufficient resources into Chinese ventures stand to be richly rewarded.
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