Taking the long view on China’s rebalancing and opportunities
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CHINA ADDED roughly the equivalent of Turkey’s or Sweden’s economy to its gross domestic product last year, while the country has become the world’s biggest buyer of industrial robots and about 10.5 million Chinese are projected to visit Thailand this yea
Figures such as these 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 Thai companies that cater to China’s evolving needs and appetites.
Much has been made of the fact that the Chinese economy expanded at its slowest pace in more than two decades last year, but 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.
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; and from export-focused to domestic consumption-oriented.
In this context, the “new normal” of annual GDP growth of 6.5-7 per cent 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.
Thailand’s geographical location, numerous tax incentives, and its massive infrastructure reforms all mean that the country will continue to benefit from Chinese investments. In fact, cumulative Chinese foreign direct investment into Thailand has soared, to US$2.65 billion (Bt92.5 billion) as of June this year, up from $890 million in 2010.
Meanwhile, Thai investors looking to head into the Chinese market need to remember that 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.
On the consumption front, we estimate that by 2025, more than 60 per cent of China’s urban population will classify as “middle class”. The recent volatility in the Chinese markets has not dented their willingness to spend.
What is more, Chinese shoppers are increasingly wired and globally minded. This has put them within online reach of suppliers from around the globe – including those in Thailand.
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.
Finally, the authorities are making a concerted effort to take manufacturing up the value chain. This is already happening in parts of China – notably in the Pearl River Delta – and it is fanning demand for technology and know-how that will take Chinese companies’ manufacturing capabilities and products to a higher level.
To be sure, 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 that foreign businesses and investors that 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 time. But it is an investment in time that ultimately stands to be richly rewarded.
Kelvin Tan, the author, is Chief Executive Officer, HSBC Thailand
