With elevated levels of debt and a declining GDP growth, China has the world abuzz of how it is going to evolve over the next decade. While some spectators are confident that Chinese leaders will step up on its reforms concerning government debt, state companies, private sectors, and monetary resources, others are convinced of an imminent financial shock.
Uncertainty in the Chinese economy is not without basis. Over the years, China has accumulated debt equivalent to 279% of GDP in 2016 with only a projected average real GDP growth rate of around 6. 1% between 2016 to 2020, and falling further to around 4.6% in the next five years.
Robin Xing, chief China economist at Morgan Stanley, notes, however, that the slow GDP growth rate is well within China’s economic plan. Now that it has penetrated the middle-high income status, it has its eyes locked on becoming a high-income society. To do that, it plans to strengthen its domestic consumption and private investment to move toward high value-added economic activities.
Angela Moh, analyst at Morgan Stanley, explains further that the Chinese domestic market will see a shift from traditional commerce to electronic commerce. True enough, mobile tech innovation, electronic banking, and online shopping are already becoming quite evident in the market today. In fact, China appears to be more determined than ever to become a global leader in science and innovation with rising investments in R&D. It is likewise looking at capitalizing in Science, if its economic forces permit.
Efforts in innovation in China are not in vain. In fact, it finally made it to the top 25 most innovative countries for the first time in 2016, as listed by the World Intellectual Property Organization (WIPO). On the same year, China’s biggest wireless provider, China Mobile, also hit a five-year high operating revenue at 6.7%, establishing how equally bullish its mobile advancements are.
All these developments, however, are not without consequences. With China moving toward a more consumption-driven economy, some sectors will inevitably lag behind. The food and beverage industry, for example, will have to adapt to ever-increasing trends in consumption, with consumers spending significantly lower on these products vis-à-vis other high-end goods and services.
Correspondingly, multiple sectors including education, information technology, and finance, among others, will have to keep up with both demographic and economic shifts to meet the needs of a growing social media-savvy consumer base that is more receptive to new ideas with profoundly different attitudes, as compared to their elders.
Indeed, the road to piercing the high-income status is paved with risks of yet another financial crisis. Nevertheless, China remains to be fundamentally a strong economy with a lot of potentials. With the Chinese leaders being adamant in reforming policies to address current issues and pushing multiple sectors to relentlessly innovate and address the growing demands of the modern consumers, China will be able to prove the naysayers wrong.
