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07 Sep, 2017

TOP 7 Forecasts For the Next 10 Years of China

TOP 7 Forecasts For the Next 10 Years of China

China’s transformation over the past 30 years can be illustrated in a number of dramatic ways: sleepy coastal towns turned high-tech manufacturing centers; Shanghai’s quaint riverfront sprouting an iconic skyline of financial might; its rise as a global economic powerhouse, second only to the U. S.

The latest act in its economic success story may see China’s unprecedented transformation for a country its size and one with far-reaching ramifications.

1. China is expected to achieve high income status by 2027

China’s per capita gross national income (GNI) of $290 in 1985 had nearly doubled to $540 by 1995, more than tripled to $1,760 by 2005, then quadrupled to $8,100 by 2016, according to World Bank data. By 2027 China could break out of the middle-income trap and join the rarified ranks of high-income society attaining per capita GNI of above $12,500.

2. China could avoid the risk of a financial shock

Despite of China’s debt has risen from 147% of GDP in 2007 to 279% in 2016, a buildup that many fear is unsustainable, China could hold as an anchor of economic stability due to three reasons:

  • China’s own savings have funded in debt, which has gone into investment, rather than consumption;
  • The government enjoys strong net asset positions both domestically and externally. Both provide adequate buffers against shocks;
  • Strong external macro positions, including a current account surplus, high levels of foreign currency reserves, and lack of significant inflationary pressures, leave China with plenty of leeway to manage domestic liquidity conditions.

3. It is forecasted slower but higher quality growth

GDP growth has trended lower every year since 2010, when growth was 10.6%. From 2011—15, real GDP growth averaged 7.9%; Morgan Stanley projects an average real GDP growth rate of 6.1% from 2016—20, falling to 4.6% (2021—25) and 3.1% by the 2026—30.

Consumption and services will come to dominate the economic landscape. Indeed by 2030, China’s private consumer market will reach $9.6 trillion and account for 47% of its GDP, up from $4.4 trillion and 39% of GDP today.

By 2030, household disposable income will reach $8,700; the median age will rise to 43, and Internet penetration will increase to 75%; compared to $5,000, 37 years old, and 52%, respectively, in 2016.

4. High-Tech Consumers will reconfigure China’s domestic market

By 2030 about half of the population in China will either have grown up with a smartphone, ecommerce, electronic payments and banking, online shopping will accelerate.

Food and beverage, home and personal care, and apparel and footwear industries in general will need to adapt to fast-changing consumption trends and overall lower allocation of spending on their products.

The sectors that are most likely to benefit: providers of high-end goods and services, as well as experiential industries, including auto, vacation travel, healthcare, household and electronic appliances, jewelry and luxury goods, and sportswear.

5. China will improve its competitiveness in high value-added manufacturing categories

China will ramp its competitiveness against other traditional leaders, such as telecom equipment, semiconductors, railways, power supply infrastructure and defense. Even higher up the industrial supply chain, China’s efforts at home-grown automobile and aircraft manufacturing are also important to watch.

6. China services segment will also experience more growth

Areas such as healthcare, education, information technology, finance, and culture and entertainment are already adapting to demographic and economic shifts. Government and private investment are also expected to grow significantly in these sectors, reflecting the demands of an aging population, the growing market for high-tech skillsets and a wealthier, savvier consumer base.

7. China’s climb to high-income status bears many risks

Indeed, only two other countries with a population of more than 20 million—Poland and South Korea—have achieved this feat in the past three decades. A lot can go wrong. The debt cycle may spin out. Unexpected headwinds, such as the recent increase in protectionism risks, may slow global growth. Yet, policy makers have signaled their resolve to focus more on preventing financial risks, indicating that they won’t protect growth at all costs.

Read also: Say Goodbye to the China Bid (By Aaron Back)

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