Year of the snake is a year to invest in China, Qing Wang tells Chinese Radio

08 February 2013

Qing Wang

As China celebrates its new year, the year of the snake, Professor Qing Wang believes the slowing down of its economy should not put off businesses looking to invest in the country in 2013 as it still aims to move 268 million people from its rural areas into cities.

China's remarkable growth is cooling off with GDP figures for 2012 showing growth of 7.8 per cent for the year, the slowest in 13 years.

There is also an increasing uncertainty about how long the political stability that played a pivotal role in the country’s economic achievement will last due to escalating concerns of corruption and widening poverty gap.

Professor Wang says these concerns will inevitably affect the decisions of businesses including multinationals and SMEs about their China strategy going forward. But she feels there is still plenty of scope for development in China with half of its 1.3 billion population still living in rural areas.

Professor Wang, who is head of the MICEE (Marketing, Innovation and the Chinese and Emerging Economies) network at Warwick Business School, said: “China is still undergoing probably the biggest urbanisation process in human history, turning it from an agriculture dominated nation with more than 70 per cent population living and working in the fields to an industrial nation with the target of reaching an urban population of 70 per cent or more.

“This process has just begun as the proportion of the rural population is still as high as 50 per cent, compared to the developed countries where it is between 20 and 25 per cent.”

That means the Chinese Government still has to move 268 million people to urban areas to achieve its target, which means a lot of investment in new infrastructure and fresh supply of labour.

“This will create new demand and opportunities for businesses,” said Professor Wang. “For example there will be a demand for affordable housing, township planning and development, good quality primary and second education, affordable medical care and hospitals. In the meantime, the still relatively small urban middle class will continue to grow and they demand high quality, premium products and services.

“In addition to the opportunities offered by the country’s urbanisation, there are new business opportunities as the country hopes to shift from export and investment-led growth to domestic and consumption-led growth. This shift is much needed to counter for the disappearance of the country’s cost advantage.

“Clearly the export-led model of development is no longer viable, as recent figures show, 9.5 per cent of China’s GDP growth in 2011 came from domestic demand and only 0.8 per cent came from net exports.

 “In an attempt to address these issues, the Government is bringing out a set of new economic and industrial policies to stimulate domestic consumption and readjust its goals from pure GDP growth to household income growth, income distribution and life satisfaction.

“I think this will mean that the balance of power between the large state-owned enterprises, multinationals and SMEs will also change, presenting new challenges for some and new opportunities to others.”   

China’s GDP now stands at US$7.3 trillion, which is five times more than 10 years ago, and its GDP per capita has also increased five times from 1,000US$ to 5,500US$. However, the household income of ordinary people has lagged behind this trend, leading to a growing wealth gap.

A recent report from the Chinese Academy of Social Sciences (CASS), the biggest think tank in Asia, on the state of the Chinese society found that people tend to have less trust in government and social institutions in 2012 than the previous year.

 “The worrying thing for the Government is that people’s trust is mostly lacking in its institutions – the legal system and police and also between patients and the health sector,” said Professor Wang. “The drop in levels of trust is quite alarming.

“The report also found that only 48 per cent of the respondents were happy with their life in general and a significant proportion of respondents were dissatisfied with unfair treatment in areas such as work opportunities, income distribution and welfare provision.

“If domestic-led growth is to occur the Government needs to resolve this widening gap between the rich and the rest of society. In a way economic inequality is a result of social inequality, because different groups or individuals have unequal access to resources. For example the accumulation of wealth through political connections and the lack of employment laws to protect migrant workers. That is social inequality but they impinge on economic inequality in the end.

“Therefore for the businesses to have confidence in venturing into China, the new leadership needs to address this.”

Click here to listen to Professor Wang talk to China Radio International about the CASS report.

Professor Qing Wang teaches Buying Behaviour on the undergraduate courses.

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