Why China’s economic boom will never be repeated
Po Chung says the collected wealth of generations fuelled past explosive growth in the likes of China and the US, and planners must realise that so much capital will never again be available and spent at once
To untangle the economic complexity and challenges we face today, it helps if we can make sense of where we are and how we arrived here.
The cumulative wealth of several generations has helped the global economy boom over the past 100 years. However, this explosive growth has come to an end and will not be repeated.
The “silent generation”, born in the mid-1920s to early 1940s, fought for survival during the heavy financial insecurities of the Great Depression and second world war, emerging with a pronounced drive to be thrifty, build capital and save.
As for their children, however, after the financial crises had passed and world economies began to grow after the second world war, the new baby boomer generation benefited from their parents’ frugality by inheriting assets, access to professional education and a consciousness to at least carve out some surplus assets for a rainy day. This reality held firm for three decades, from the 1960s to the 1990s.
From the 1990s to the early 2000s, the banking industry metastasised, convincing baby boomers to dream even bigger and upgrade their living standards. This trend of upgrading was funded by borrowing against their potential earning power.
At the same time, business saw significant opportunities in China as a manufacturing economy that could produce goods for as little as 10 per cent of the domestic cost. This trend convinced the American and Western public that their stagnating income could now buy three or four times the amount of their daily and capital goods.
The income that the American blue- and some white-collar jobs created was extracted with the outsourcing of these jobs to China, India and others, while new sources of income through high added-value jobs failed to appear, making the income deficit hit hard and fast.
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This story also affects China. It was spoiled by the gift of three generations’ savings being released at once. This was the spark that held China’s GDP at double-digit growth. However, this spending has come to an end and, without export demand, China is already seeing a contraction in its output.
China’s economy started from a very low base and reaped the rewards of spending by the past three generations. But now, as reflected in the “new normal”, it is tapering off, with less than double-digit GDP growth. As such, China must further open up to international trade standards and practices, and develop its domestic service economy.
With increased spending and easier access to credit, globalised consumerism created a domino effect of upgrading. People bought larger houses, a new car, a new TV, clothes and watches. As one family upgraded, so did the next. Huge proportions of the population were spending money all at once.
This cycle of upgrading and the resulting boom in China’s manufacturing industry led to the gradual transfer of capital from three generations of the West’s savings into the Chinese economy.
We are now facing a crisis caused by spending the savings of the three generations compressed into one, leaving us where generations of debt have come to an end and mortgages now have to be paid.
It is a misconception that China’s economy has slowed down, causing a knock-on effect globally. The truth is that Western economies, China’s customers, slowed down even earlier. With three generations of savings spent, younger generations are not inheriting nearly as much capital. By extension, if people are not upgrading their lifestyles and buying products made in China, the country’s manufacturing economy will slow down.
We must recognise that so much capital will never again be available and spent at once. For China, this means diversifying its economy from solely manufacturing, and supplementing this with service economy opportunities. The ones who will succeed in the next 30 years will be those who recognise that the economic growth of the past will not be replicated in the same way again.
Po Chung is co-founder of DHL Asia-Pacific and founder of the Hong Kong Institute of Service Leadership & Management