China’s declining growth is a half a trillion dollar business opportunity
Although the headline growth rate is slowing, China’s economy still expanded by an incremental US$520 billion between 2014 and 2015
After three decades of double-digit growth, the world expects China to continue on its upward trend. With such high expectations, its 6.9 per cent growth in 2015 or US$520 billion in incremental growth was seen by many as the dawn of economic decline for its trading partners.
However, slower growth is an inevitable outcome of much needed structural reform for China to make a strategic shift away from investment and export dependency to domestic consumption and services. And China is asking the world to embrace this transformation towards sustainable growth as its new normal. I see this as an opportunity to realign one’s strategy to scale in the emerging industries that China seeks to leapfrog and dominate.
Let’s go back 25 years earlier. In 1992, China’s gross domestic product stood at US$425 billion. That was a significant year as several special economic zones were initiated to propel the Chinese economy towards capitalism. The resulting annual growth rate over the next decade was in excess of 12 per cent, effectively tripling its GDP.
Today, the richest man in China, Wang Jianlin, epitomises the required agility in the transformation of Wanda Group from a real estate empire to a leading player in entertainment media and theme park business
The rising income and real consumption gained traction as fast-moving consumer goods led the charge in national distribution coverage, followed by consumer electronics. The next boom was in personal computers, mobile phones, automobiles and real estate. Currently, interest in financial products, investment properties and start-ups leads the growth.
Compared to the dizzying double-digit growth of 1992 to 2012, the growth projection of 6.5 per cent for 2016 seems anaemic.
But there are several ways to see the opportunities underlying this seemingly slow growth. First, the incremental GDP growth of US$520 billion from 2014 to 2015 is larger than the absolute GDP of US$425 billion in 1992 when the economy began its trajectory.
Another perspective is to compare China’s incremental growth to the GDP of Asian countries. Based on information from the World Bank, the following table and chart show how various Asian countries have performed.
Despite its slowing economy, China’s year-on-year GDP dollar increment translates to an almost new Taiwan economy being produced each year (US$515 billion versus US$524 billion). Viewed from another perspective, its incremental growth is equivalent to two Asian economies combined – Hong Kong and Vietnam – one developed and another at the forefront of development respectively.