China

China Overview :

  • For much of its lengthy history, China has been one of the world’s premier powers.
  • Internal divisions, technological stagnation and foreign invasions led to a major collapse in Chinese power in the 19th and early 20th centuries.
  • World War Two saw Japan occupy large areas of China.
  • The more than two-decades-long civil war between communist and nationalist forces resulted in the communists under Mao Zedong gaining power over all of China by 1949.
  • After a series of cultural and economic experiments led to great disasters, the communist government finally implemented market reforms in the 1980s.
  • Since these reforms, China’s economy has been among the fastest growing in the world for nearly four decades.
  • China’s huge population and size have made it the one country that can seriously threaten the United States’ leading position in world affairs in the near future.

 

Key Facts and Data:

  • Official Name – People’s Republic of China
  • Capital – Beijing
  • Government Type – Communist state
  • Head of State – President Xi Jinping (since 2013)
  • Head of Government – Prime Minister Li Keqiang (since 2012)
  • Population – 1,379,303,000
  • Land Area – 9,326,410 sq. km
  • Total GDP (US$) – $11,232 billion
  • Per Capita GDP at PPP (US$) – $15,399
  • Currency – Chinese yuan

Table of Contents :

Current Events

  • Recent Political Events
  • Recent Economic Events
  • Other Recent Events

 

Political Outlook :

  • Overview of the Current Government
  • Leadership Profile
  • Summary of the Most Recent Elections
  • Leading Political Parties
  • Forecast for the Next Elections
  • International Relations Outlook
  • Potential Conflicts
  • Military Capabilities
  • Key Political Issues
  • Political Risk Outlook

Economic Outlook :

  • Economic Overview
  • GDP Growth Forecasts
  • Key Sector Forecasts
  • Inflation Forecasts
  • Foreign Trade Forecasts
  • Foreign Investment Forecasts
  • Exchange Rate Forecasts
  • Outlook for Key Sector
  • Key Economic Issues
  • Economic Risk Outlook

Demographic and Environmental Outlook :

  • Population Overview
  • Population Characteristics
  • Development of Leading Urban Centers
  • Key Demographic Issue
  • Topography and Climate Overview
  • Environmental Threat Summary
  • Key Environmental Issues
  • Demographic and Environmental Risk Outlook

Current Events and Recent Changes Overview

Key Political Events and Changes:

  • North Korean leader Kim Jong-un travelled to China for his first trip outside of his country since he gained power in 2011. This visit came ahead of a planned meeting between Kim and United States President Donald Trump.
  • In April 2018, China carried out a major naval exercise in the disputed waters of the South China Sea last week. This was the largest naval exercise ever undertaken by China and highlighted the country’s increasing focus on building up its naval power. Afterwards, China carried out a large-scale live-fire exercise in the waters that separate Taiwan from mainland China.
  • President Xi hosted Indian Prime Minister Narendra Modi for an informal meeting in the city of Wuhan in April 2018. This followed last year’s standoff between these two countries near the border of Tibet and Bhutan.
  • It was reported that China had approached the Pacific Island nation of Vanuatu with a proposal to establish a permanent military base there.

Key Economic Events and Changes:

  • The Chinese economy expanded by 6.8% on a year-on-year basis in the first quarter of this year, according to official results. This was the same rate of growth as in the previous quarter and was higher than had been expected. Consumer demand was a key driver of this growth, even as the Chinese real estate sector showed signs of slowing.
  • The United States imposed on $60 billion worth of Chinese imports into the US. In response, China reacted by imposing tariffs of up to 25% on $50 billion worth of imports into China from the United States.
  • Tensions between the United States and China remained high as the latest round of trade talks between the two countries failed to reach a deal on avoiding a trade war in May 2018.
  • Chinese export growth rose sharply to 12.9% year-on-year in April 2018.
  • Liu He was named as one of China’s four new vice premiers, and he will focus on managing economic and financial issues. Also, Yi Gang was named as the new head of the country’s central bank, which was recently granted new powers to manage China’s banking and insurance sectors.

 

Key Economic Issue (part one):

China’s Consumer-Driven Economy Beats Expectations

Summary – Over the past 18 months, the Chinese economy has defied expectations of a slowdown as it managed to record healthy rates of growth throughout that period.  Instead of a slowdown, the Chinese economy has managed to hold steady at a rate of growth that is the envy of most of the world’s other large economies.  Moreover, while the uncertain outlook for trade and investment has dampened enthusiasm among Chinese exporters, the fact is that, so far, export growth in China has remained relatively strong. However, it is consumer spending in China that is now the key driver of the country’s economic growth.  This is due to the fact that, for the past 40 years, the Chinese economy has expanded at an average rate of 9% per year, allowing wealth levels in China to rise dramatically.  In fact, China is now home to large and expanding upper and middle classes and this is driving the remarkable increase in consumer spending that has been seen in recent years.  Sure, China still faces a number of threats that could bring an end to this run of strong growth, particularly its growing debt problem and the threat of a global trade war.  Nevertheless, the recent performance of the Chinese economy will raise hopes that a sharp downturn can be avoided and that China will continue to record some of the world’s highest rates of economic growth.

A Strong First Quarter In the first quarter of this year, the Chinese economy expanded by 6.8% on a year-on-year basis, a slightly higher rate of growth than had been expected.  In fact, this was the same rate of growth as China recorded in the second half of last year, a rate of growth that appeared to be unsustainable over a longer period of time.  Instead, consumer spending in China continued to rise at a very strong pace in the first quarter, defying expectations of slower growth during that period.  In fact, domestic consumption accounted for nearly 80% of China’s economic growth in the first quarter, an all-time record, highlighting the shift towards a consumer-driven economy that has been underway in China in recent years.  At the same time, while China’s economy is becoming less dependent on manufactured exports for generating growth, export growth remained solid in the first quarter, due in large part to rising levels of demand in the United States.  Like consumer spending, export growth had been expected to slow, but instead, it exceeded expectations in recent months as the global economic climate remained favorable.  Altogether, these factors contributed to China’s better-than-expected economic performance in the early part of this year.

Key Economic Issue (part two):

China’s Consumer-Driven Economy Beats Expectations

Headwinds Ahead While Beijing will be pleased with China’s strong economic results in the first quarter, it must be aware that a period of adjustment is forthcoming for the world’s second-largest economy.  This is due to a number of factors, none of which is more important than the increasing threat posed by China’s rising debt levels.  In particular, the Chinese government knows that it will have to do more to reduce lending levels in order to tackle this debt problem, something that will have a significant impact on consumer, business and local government spending when it occurs.  Likewise, other domestic concerns such as overcapacity and an at-risk real estate sector also have the potential to put a major dent in growth in the months ahead.  While the domestic situation is facing a number of major risks, China’s external situation has become much trickier in recent months.  This is due to rising trade tensions with the United States, tensions that threaten to lead to a trade war between the world’s two largest economies that could spread to many more of China’s leading trade and investment partners.  As these domestic and external risks rise, the Chinese government will have to do more to ensure that the Chinese economy avoids a sharp decline in the coming years

China: Other Recent Events and Changes

Other Key Events and Changes:

  • China’s ban on the trade of ivory and all ivory products went into effect.

 

China Political Outlook

China: Current Government

Overview:

  • The Communist Party controls all aspects of political power in China.
  • The National People’s Congress of the Communist Party approves the state council as well as the president and the vice-president.
  • In November 2012, the ruling Communist Party held its once-in-a-decade congress to select the party’s (and the country’s) new leaders for the next decade. As expected, Xi Jinping was selected as the new head of the Communist Party, while Li Keqiang was named as China’s new premier. Meanwhile, the party’s Standing Committee was reduced from nine to seven members.
  • Xi Jinping took over the presidency from Hu Jintao in March 2013.

 

Key Members of the Government:

  • Head of State – President Xi Jinping
  • Head of Government – Prime Minister Li Keqiang
  • Vice President – Li Yuanchao
  • Vice Premier – Zhang Gaoli
  • Vice Premier – Liu Yandong
  • Vice Premier – Wang Yang
  • Vice Premier – Ma Kai
  • Minister of Foreign Affairs – Wang Yi
  • Minister of Finance – Lou Jiwei
  • Minister of National Defense – Chang Wanquan

 

Profile of President Xi Jinping

Background:

Xi Jinping ascended to the top of the Communist Party in late 2012 and became the president of China in early 2013.

  • President Xi is the son of Xi Zhongxun, one of the highest ranking government officials in the 1950s and 1960s.
  • He first entered provincial government in the 1980s and gradually rose through the ranks of the Communist Party, joining the Standing Committee in 2007.

 

Key Policies and Stances:

President Xi made a name for himself by leading the Communist Party’s efforts to eradicate corruption in China.

  • Since taking office, he has made a major effort to boost the Chinese public’s faith in the Communist Party and to remove officials linked with corruption.

President Xi has focused much of his attention on foreign and defense affairs since taking office.

  • He has promoted greater Chinese engagement in the world, while striving to maintain stable relations with the United States.

 

China’s Leading Political Forces: Chinese Communist Party

History

The Chinese Communist Party is the only legal political party in China.

  • The party has 67 million members as membership is a key to personal advancement in China. • The party gained control of China in 1949 after a long civil war with the Nationalist government.

Key Policies and Stances:

  • The party promotes a market economy, though the state does retain much influence in this sphere.
  • The party does not tolerate any dissention, typically labelling opponents as counter-revolutionary or enemies of China.
  • The party has recently undertaken a number of anti corruption programs.

 

Outlook:

Despite the perception that numerous, well-organized opposition forces exist in China, the reality is that the Communists’ grip on power remains complete. 

  • In fact, it is difficult to see any circumstances that will lead to serious troubles for the Communists within the next twenty to thirty years.

 

China: International Relations Outlook

  • China continues to lay claim to Taiwan and has threatened to invade the island should Taiwan declare its formal independence.
  • China and Japan dispute their shared maritime boundary in the East China Sea.
  • China claims much of the South China Sea, despite claims from other countries in the region.
  • China and India have a number of border disputes, but have moved to ease tensions over these disputes in recent years

 

International Relations Outlook:

  • China’s growing power is a growing concern for the rest of Asia, particularly Japan and Southeast Asia.
  • China will become the largest rival to the US in terms of global power over the next few decades.

 

Key Political Issue (part one): The Future of Chinese-Indian Relations

Summary – The bilateral relationship between the world’s two most populous countries, China and India, has the potential to be one of the relationships that defines the remainder of the 21st century.  Unfortunately, the relationship between these two Asian giants has not always been easy, with a great deal of mistrust for one another sowing discord between them.  The leading example of the difficulties of this relationship in the 1962 war that they fought with one another, a war in which China inflicted a humiliating defeat on India.  In recent years, a number of issues and disputes have arisen that are once again threatening to derail efforts to improve ties between China and India.  For example, India is fearful of China’s rising economic and military power, particularly in areas that it considers within the Indian sphere of influence, such as the Indian Ocean and South Asia.  Moreover, while both countries are high-growth emerging markets, the fact that China’s re-emergence precedes that of India means that China’s economic power far outstrips that of India at present.  How India responds to China’s rising power will go a long way towards determining the future of this very important bilateral relationship.

Common Ground Despite their strained relations, China and India do share common interests in a number of areas.  For example, both countries are leading efforts to rebalance the global economy by lessening the dominant position of developed economies in terms of trade, investment and the establishment of global economic standards.  Furthermore, both countries largely support multilateralism, despite long histories of distrust of international organizations in both countries.  Both China and India share the goal of preventing the spread of radical religious ideology from Central Asia, while both countries are engaged in efforts to reduce support of separatist movements within their borders, in areas such as Xinjiang and Kashmir.  Finally, both countries view Asia as the center of the global economy and it is the interest of both China and India for the entire region to enjoy high rates of economic growth and to maintain a degree of stability.  Thanks to these shared goals, China and India have been able to find common ground on many issues in recent years.  However, many issues still divide these two giants.

 

Economic Relations A key issue that both brings together and divides China and India at the same time is the trade and investment relationship they share.  On one hand, trade and investment ties between China and India have soared in recent years, and both governments have made major efforts to promote these bilateral economic ties.  However, the relationship thus far has been anything but equal.  For example, the fact that China’s economic modernization began more than a decade before that of India, and the fact that China developed a massive manufacturing sector well before India, has resulted in China now enjoying a massive lead over India in terms of the scale of their economies and their relative wealth levels.  In fact, while China averaged economic growth rates of 10% for three full decades between the 1980s and the early part of this decade, India has, thus far, been unable to match this impressive record.  As a result, India views its trade and investment relationship with China from a position of inferiority, with China enjoying most of the benefits of this relationship.  Likewise, both countries are competing with one another for natural resources, most notably energy, to fuel their expanding economies.  This has put them at odds in many areas of the world.  As a result, while  economic ties between China and India are likely to  continue to grow, so too is their economic rivalry, and this could stoke political and security tensions between the two countries in the coming years.

 

Key Political Issue (part two): The Future of Chinese-Indian Relations

Common Ground In addition to their economic rivalry, China and India find themselves on opposite sides of a number of political and geographical disputes that have resulted in tensions between the two countries remaining relatively high in recent years.  Many of these issues stem from disputes involving the border between the two countries.  In fact, there disputed areas along almost the entire border between China and India, from Kashmir in the west to the very end of their shared border in the east.  At times, including the present, one or more of these disputed areas of the border has resulted in both sides sending additional armed forces to the border region, raising the potential for a clash between the two countries.  Away from the border, a number of other issues are straining relations between these two giants.  For example, China is expanding its presence around the Indian Ocean in order to secure shipping lanes for energy and other resources from the Middle East and Africa, but India considers much of this ocean to be within its sphere of influence.  Likewise, China’s strengthening economic and defense relationship with India’s long-time rival, Pakistan, is worrying New Delhi, which accuses Pakistan of attempting to destabilize India.  On the other hand, Beijing is concerned about India’s closer economic and defense ties with the United States, fearing that the US sees India as a counterweight to rising Chinese power in Asia.  Overall, it is clear that there are many issues that could provoke a major deterioration of this vital b-lateral relationship.

 

Global Ramifications Given the size and the potential power of both countries, it can be argued that the second-most important bilateral relationship in the world today is the one between China and India, due mostly to the scale of the two countries.  For example, China and India are home to 2.7 billion people today, or 35% of the world’s population, with India’s population alone set to soar to an estimated 1.7 billion people by the middle of this century.  In terms of economics, China is already either the first or the second largest economy in the world, and India has begun its climb up the rankings as its economy grows by around 7% per year.  While their scale is massive, so too is the potential for a conflict between these two countries, either along their disputed border or in regions where both countries are seeking to exert their power and influence.  Moreover, both countries could find themselves on opposite sides of an alliance system designed to offset China’s growing power in the region.  Should this relationship worsen dramatically, the future stability and prosperity of all of Asia will be jeopardized and the gains that both countries have made in recent years could be reversed.  It is therefore easy to see why this relationship is so important for both countries, as well as for the rest of the world.

 

Potential Conflict: Taiwan

Main Disputes:

  • China opposes any attempt by Taiwan to assert its independence or abandonment of the One China policy.
  • Taiwan is protected from Chinese aggression by military support from the United States, with additional support from Japan.
  • China has pressured countries and international organizations into not recognizing Taiwan as a state.

 

Best- and Worst-Case Scenarios:

  • Best Case Scenario – Taiwan moves towards a reunification with the mainland, easing tensions between the two states and lessening the tensions between China and the US.
  • Worst-Case Scenario – Taiwan declares its independence, prompting Chinese military action against Taiwan.

 

Potential Conflict: India

Main Disputes:

  • China disputes India’s control of the Sikkim region in the far east of India.
  • The two countries fought a brief border war in 1962.
  • China claims a large area of Arunachal Pradesh state in northeast India.
  • India claims a large piece of territory in Kashmir that is currently occupied by China.
  • India accuses China or supplying Pakistan with weapons and other material support.

 

Best- and Worst-Case Scenarios:

  • Best Case Scenario – Economic cooperation between the two giants leads to improved political relations.
  • Worst-Case Scenario – China’s relations with Pakistan continue to sour relations between India and China.

 

Potential Conflict: Russia

Main Disputes:

  • China and the former Soviet Union fought a number of brief, but fierce, border conflicts in the 1960s.
  • China claims much of the Russian Far East that was ceded to Russia in the 19th century by a weakened China.
  • An overcrowded China looks with envy at the vast unpopulated, but mineral-rich, regions of Siberia.
  • As Russia’s control over Siberia weakens, chances are high that China will one day increase its influence there.

 

Best- and Worst-Case Scenarios:

  • Best Case Scenario – The status quo is maintained, with Russia and China developing closer political and economic ties.
  • Worst-Case Scenario – Russia’s control over Siberia and its Far East continues to decline, tempting China to make a move to gain control of these regions.

 

Potential Conflict: The South China Sea

Main Disputes:

  • China has asserted its “right” to control the entire South China Sea.
  • China and Vietnam dispute control of the Paracel Islands in the northwest section of the South China Sea.
  • China, Vietnam, Taiwan, Brunei, Malaysia and the Philippines all claim control over parts of the Spratly Islands.
  • Many Southeast Asian countries have complained of Chinese fishing boats operating within their waters.

Best- and Worst-Case Scenarios:

  • Best Case Scenario – An agreement is reached between all countries involved over the maritime borders and natural resources in the South China Sea.
  • Worst-Case Scenario – China asserts its authority over most of the South China Sea and this is resisted by some of the other countries in the region.

Military Spending

Strengths and Weaknesses

China is undergoing a massive military modernization program.

  • Chinese military spending is second only to that of the United States and Is rising faster than any other country in the world.

China has the world’s largest standing army with more than two million troops.

  • However, its ability to project power remains very limited and this is the focus of the country’s latest modernization efforts as it hopes to be able to project power further afield in the Pacific and Indian oceans.

China has the world’s third-largest nuclear weapons arsenal.

  • Most of these are regional, with only a few intercontinental weapons at present.

Outlook

The expansion of China’s military strength will be the greatest issue in Asia-Pacific security in the 21st century.

  • As China’s ability to project power increases, Taiwan, ASEAN, Japan and others will increasingly look to the US for additional protection, potentially adding further strains between the superpower and the up-and-comer.

Key Political Issue (part one): The Arms Race in Asia

Introduction – There is no region that is more important to the security and economic prosperity of the world today than Asia.  As home to 56% of the world’s population, and 35% of the world’s economic output, Asia is playing an ever-greater role in the world.  Meanwhile, Asia is also home to many of the countries that are increasing their arms spending at a rate that is much higher than their counterparts in other regions, and the region as a whole now accounts for 27% of global spending on defense.  For a number of decades, it was an outside power, the United States, that played the dominant military role in Asia, and this helped to keep defense spending levels relatively stable across much of the region.  However, the balance of power in Asia is shifting, due largely to the fact that China is retaking its position as the leading economic and military power in Asia.  As a result, countries across the region are scrambling to prepare and equip their militaries for the potential challenges that could be posed by an increasingly powerful and assertive China.

Soaring Defense Budgets Across Asia, defense budgets are expanding rapidly.  In some cases, countries have been building up their military capabilities for decades, while in others, defense spending is only now beginning to rise at an appreciable rate.  Overall, defense spending in Asia has risen from $142 billion in constant US dollars in 1990 to $450 billion today, a rate of growth unmatched anywhere else in the world.  Sure, the United States still spends far more on its armed forces than the entire region of Asia combined, but its military assets are scattered all around the world, even as the US increasingly views Asia as a region vital to its security.  The one country that has been able to close the defense spending gap with the United States somewhat over the past few decades is China, where defense spending has risen from $38 billion in constant US dollars in 1990 to $215 billion today, an amount three times greater than that of all other countries in the world apart from the United States.  Another major military player in Asia is Japan, where despite having pacifism enshrined in its constitution, the country has managed to develop one of the world’s best-equipped military forces.  India too is expanding its defense spending rapidly, but it faces challenges on multiple fronts that prevent it from focusing solely on the threat from a more powerful China.  In fact, all across the region, defense spending is rising and armed forces are being prepared for an increasingly uncertain future.

 

Key Political Issue (part two): The Arms Race in Asia

The Impact of China Clearly, the recent rise in defense spending in Asia is being driven by the shifting balance of power in the region that has resulted from the dramatic expansion of Chinese military and economic power in recent years.  In 1990, China accounted for just 15% of all defense spending in Asia, and its level of defense spending was less than 4% of that of the United States.  Today, China accounts for 48% of all defense spending in Asia, and it now spends fully 35% of what the US spends on its armed forces, a gap that continues to shrink.  Furthermore, China’s military is rapidly transforming from one that was largely a land-based defense force to one that can fight multiple forms of warfare at a much greater distance from China’s borders.  While issues such as North Korea’s provocations and the threat of terrorism may dominate the headlines, these are but a sideshow to the real threat to the region, which is the potential domination of Asia by an increasingly-powerful China.  As a result, not only are the other countries in Asia moving to increase defense spending, but they are also seeking ways to improve the level of cooperation with the armed forces of other countries in the region.

 

More Spending Increases to Come Without question, Asia’s influence in the world is at a higher level than at any time during the past two centuries.  Therefore, Asian security issues not only have a bearing solely on Asia, but much further afield.  For the region to remain stable and secure,it must find a way to successfully achieve a balance of power that is acceptable to all of the major players in Asia.  However, the region is full of flashpoints that have the potential to spark a conflict between two or more of the leading powers in the region.  These flashpoints include North Korea and the South China Sea, two issues that involve both the United States and China and could bring these two countries and their allies into open conflict.  Moving forward, the United States still has a major role to play in maintaining the balance of power in Asia, but its commitment to this role has been questioned by many of its allies in the region, particularly over the past year.  In the meantime, regional defense spending appears likely to continue to rise in the years ahead, potentially adding to the already considerable risks levels facing Asia and making this region’s stability and security a global concern.

China: Political Risk Outlook

  • The Communist Party’s near-total grip on power has helped to keep political risk levels down, despite the multitude of potential disruptions inside China.
  • Meanwhile, China’s external political risk will remain fairly significant, particularly if the government chooses to take an aggressive stance towards Taiwan and other countries in the region.
  • China’s most assertiveness stance with regards to maritime border disputes in the East China Sea and the South China Sea has raised tensions significantly in East Asia in recent years.
  • Relations with the United States will be a key long-term factor in determining political risk levels in China.

China: Economic Overview

Economic Summary:

China has undergone a period of tremendous economic advancement since the introduction of market forces in the early 1980s.

  • China is now home to the world’s largest manufacturing sector thanks to three decades of massive investment.
  • Foreign investment is the manufacturing sector is driven by the vast potential of the Chinese market and the cost advantages found in China.

The service sector is also growing rapidly, but lags far behind the developed world.

  • Future expansion potential in this sector is huge given the growing wealth of China’s 1.3 billion people.

The re-emergence of China as a leading economic power is having a massive impact on the global economy.

  • Other emerging markets are finding themselves competing for foreign investment with China and its massive market potential.
  • For developed countries, they are seeing more manufacturing investment shifting to China.

China: Wealth Comparisons

Key Wealth-Related Issues and Trends

China has some of the world’s largest wealth discrepancies, and this gap is widening.

The growing upper and middle classes of China have seen major gains in their purchasing power.

However, a large segment of China’s population continues to live in poverty, especially in rural areas.

China’s high economic growth rates are pushing the country rapidly up the per capita GDP table.  In just the past twenty years, China has gone from one of the poorest countries in the world to levels approaching East Europe and Latin America.  At current growth rates, it will pass these regions before the middle of this century.

China and India as Global Economic Powers

Key Points

  • As recently as the early 19th century, China and India accounted for 50% of global economic output.
  • Until the Industrial Revolution, China and India enjoyed a massive economic advantage as a result of the two countries’ huge populations.
  • By 1950, the two countries combined for less than 9% of global economic output as the Industrial Revolution had passed the two countries by.
  • Today, China and India account for nearly 20% of global economic output, thanks largely to China’s incredible economic growth rates over the past 35 years.
  • By 2050, China and India are forecast to account for nearly one-third of global economic output.

The Role of China and India in the Global Economy

Key Points

  • China has replaced the United States as the leading contributed to global economic growth in recent years, thanks to its rapid economic expansion over the past 35 years.
  • China will account for nearly 25% of all growth for the global economy over the coming decade, while India will account for around 6%.
  • India’s role in driving global economic growth remains smaller, but is expanding as the country’s economy picks up steam.

• In contrast, Europe’s and Japan’s role in driving global growth will continue to shrink in the coming decades.

 

 

China: GDP Growth Outlook

Current Outlook:

  • Official growth rates in China fell below 7% in recent years, and actual growth rates were likely somewhere between 3% and 5% in 2015 and 2016.
  • Growth picked up slightly in 2017, driven upwards by government spending on infrastructure projects and robust levels of consumer spending.

Future Outlook:

  • Growth rates decline slowly over the near-term as the government moves to rein in credit levels in order to prevent debt levels from rising too high.
  • Looking further ahead, the days of ten percent GDP growth rates are lover as growth will average around 6% later in the forecast period.

China Consumer Market Overview

Per Capita Income Levels By Province

Key Regions

The Chinese Domestic Market

Overview

  • The gradual transformation from an export-driven economy to a domestic-driven economy continues in China and this is placing more of the onus for growth on the Chinese consumer.
  • The purchasing power of Chinese consumers has soared over the past 25 years as the Chinese economy has expanded.

• Chinese consumers’ appetite for imported goods and services will continue to rise in the coming decades as China will become an ever-more important export market for the rest of the world.

Manufacturing Location Rankings by in Developing Asia

Current Situation:

  • China remains Asia’s most attractive manufacturing location and the world’s dominant manufacturing center, but rising costs are jeopardizing its position.
  • Other East Asian emerging markets such as Vietnam and the Philippines are attracting more low-cost manufacturing investment.

 

Future Situation:

  • Chinese manufacturing will continue to move upmarket as costs rise.
  • Other Asian emerging markets will see their manufacturing sectors grow rapidly in the coming years as the region remains the center of global manufacturing.

 

The Steel Industry in China

China’s steel industry has grown into the largest in the world in a relatively short period of time.

  • This expansion has been driven by the tremendous growth in demand for steel by China’s manufacturing industries.
  • Moreover, demand from the booming construction industry in China will also grow significantly in the coming decades.

China’s steel industry remains highly fragmented and has low rates of productivity.

  • Increasing foreign investment will help solve some of these problems.
  • In recent years, the government has sought to consolidate the industry in order to improve its overall levels of productivity.

China’s steel industry has grown so fast that it now dwarfs that of all other major industrialized powers.  Moreover, as quality and productivity improve, exports will also grow, having a major impact on steel industries throughout the world.

The Automotive Industry in China

China has emerged as easily the world’s largest automotive producer in recent years. • It passed the United States and Japan in recent years and is forecast to pull away from these two countries in the years ahead.

Foreign investment is pouring into the Chinese automotive sector. • Leading investors include Volkswagen, General Motors and Toyota. • All anticipate massive growth of the domestic Chinese automotive market.

The Chinese government has announced its intention of having three primary auto manufacturers, a Chinese “Big Three”. • It hopes to consolidate its own automotive industry in order to reduce its dependence upon foreign automotive companies.

The vast potential of the Chinese automotive market has foreign investors flocking to the country.  Should investment exceed market growth, look for China to become Asia’s latest automotive export center, probably at the expense of other countries’ automotive industries in the region.

China: Industrial Production Growth Outlook

Current Outlook:

  • Industrial production growth rates exceeded 16% in each year between 2003 and 2008.
  • Since 2009, industrial production growth rates have remained well below pre-crisis levels as export demand has not returned to the levels of earlier years.

Future Outlook:

  • Industrial production growth will remain subdued over the near-term.
  • However, China will remain the center of world manufacturing, changing forever the face of the world’s major manufacturing industries such as steel, automobiles and shipbuilding.

China: Inflation Outlook

Current Outlook:

  • Inflation rates have remained relatively low in recent years.
  • Inflation in China fell to its lowest level in nearly a decade in 2017.

Future Outlook:

  • Looking ahead, inflation rates are forecast to remain near current levels over the longer-term, although inflationary spikes will remain a threat.

China Foreign Trade Overview

China has become the undisputed export giant in recent years as the country now accounts for more than a quarter of the world’s manufactured exports.  As export growth continues to slow , and demand for imported goods into China rises, China’s trade surplus will be reduced.

Imports in China

China: Foreign Investment

China has been one of the world’s largest recipients of foreign direct investment over the past two decades.

  • It is easily the leading FDI recipient among emerging markets as well as in Asia.
  • FDI grew rapidly after the government allowed foreign investors to sell their products on the Chinese market.

Foreign investment in China has focused upon the manufacturing sector.

  • Automobiles, consumer goods and other products destined for the Chinese market have led the way.
  • This manufacturing focus has left the service sector undeveloped.

Outlook For Future Foreign Investment:

China will remain the leading emerging market in terms of foreign investment potential for the foreseeable future, despite growing competition from India and other large emerging markets.

  • With foreign investment having saturated the manufacturing sector, future FDI will increasingly focus on the high-tech and service sectors.

China has grown to rival the United States as the world’s largest recipient of foreign investment in recent years.  However, China still trails most developed Asian countries in terms of per capita FDI inflows, signalling the FDI inflows into China have the potential to continue trending upwards in the coming years.

 

Working Patterns and the Labor Force in China

China’s labor force has been undergoing a dramatic transformation over the past few decades. • Huge numbers of rural workers have moved to urban areas in search of jobs.

  • However, this vast surplus of labor in rural areas is beginning to disappear.
  • As a result, the country’s unemployment rate is relatively low as labor shortages become a problem in some sectors of the Chinese economy

Chinese labor costs are still relatively low, but wages are rising rapidly, particularly in eastern and coastal areas of the country.

  • As there is a shortage of skilled workers in many areas of the economy, labor costs are rising at a rapid pace.
  • Moreover, there continues to be a huge gap in wages between skilled and unskilled workers.

 

 

China: Exchange Rates

Since 2010, the government has allowed the yuan to trade more freely, a move that led to a slow, but consistent, appreciation of the currency against the US dollar and many other major currencies.  After the yuan weakened again against the US dollar between 2014 and 2016, it rebounded sharply in 2017.

China: Official Reserves

Current Outlook:

  • China has accumulated by far the largest amount of official reserves in the world, in large due to the country’s massive trade surplus with the rest of the world

Future Outlook:

  • There have been growing calls for China to use its huge hoard of reserves to invest in natural resources and agriculture abroad

Cost of Living

Living costs in China remain fairly low in most areas of the country, although they are rising quickly.  However, cities such as Shanghai, Beijing and Guangzhou are quickly matching their counterparts in East Asia in terms of living costs.  As economic growth remains high and more people move to the cities, living costs will continue to rise.

Fiscal Policy Overview

Current Outlook:

  • High levels of government spending and slower economic growth rates have resulted in a continuing fiscal deficit in recent years.
  • This has forced the government to introduce new measures to control government spending in the wake of this stimulus packages.

Future Outlook:

  • As economic growth continues to slow, China’s fiscal deficit could rise significantly in the coming years.

Largest Companies in China

Leading Companies:

  • China’s largest companies are primarily involved in the energy, banking or insurance sectors, with few consumer goods or transport companies on the list.
  • However, this will change as wealth levels in China grow and consumer spending levels rise sharply in China in the coming years.

Outlook for Domestic Companies:

  • Domestic companies have unmatched access to the fast growing Chinese market and this will lead to massive growth rates for many Chinese companies, some of which are likely to become some of the world’s largest companies.

 

Key Economic Issue Access to Oil

One of the greatest challenges facing modern China is its ability to access oil and gas supplies. • Recently, it was announced that China’s oil and gas reserves are shrinking far faster than had previously been estimated.

  • This will force China to import greater amounts of oil and gas as its economy grows.

China is eyeing a number of potential sources of oil and gas.

  • Central Asia will become a major source, with a new pipeline being built to transport oil from Kazakhstan to China.
  • China hopes to build a pipeline from Siberia, over plans by the Russians to build a pipeline to the Pacific Coast to ship oil to Japan.
  • China is becoming the main competitor for the US in Africa’s growing oil centers.

China’s lack of energy reserves could prove to be one of the great destabilizing factors in Asia in the 21st century, for it is certain that Chinese demand for oil and gas will continue to grow rapidly.  This could see China increasingly finding itself at odds with the US in Central Asia and Africa and may damage relations between the two powers.

China: Corruption

Main Corruption Issues

Corruption remains a major problem in China, despite government attempts to crackdown on it.

Bribery, often involving local governments, is the single biggest issue.

Most analysts agree that the corruption problem has deteriorated in recent years.

The government of President Xi Jinping has vowed to maintain its crackdown on corruption, but as corruption is so prevalent across China, it will take years before any serious progress is made.

 

Forecast Assumptions and Risk

Assumptions:

Near-Term Global Growth to Remain Stable The near-term forecast for the global economy calls for overall economic growth rates to remain near current levels, with developed economies continuing to grow faster than in previous years.

 Mid-Term Economic Risk Levels to Rise A number of risks (share price corrections, Chinese debt, political gridlock) will rise to more dangerous levels by 2019, jeopardizing the recent run of steady growth for many large economies.

Asia Drives Global Growth Asian emerging markets, led by China, India and Southeast Asia, will generate nearly half of the world’s economic growth over the near- and midterm.

China Does Not Experience a “Hard Landing” Chinese GDP growth rates will trend downwards over the coming years, but a hard landing for the Chinese economy is unlikely as domestic consumer demand will continue to rise.

Risks:

A Global Power Vacuum Whether by design or due to internal political unrest, the United States’ ”America First” policies are resulting in power vacuums forming in many of the world’s most volatile regions.

Major Power Conflicts The risk of conflicts between large- and mid-sized powers is rising in the Middle East, Asia and East Europe, and any of these could have the scale needed to severely disrupt the global economy.

Major Environmental Problems China faces the potential of massive environmental disasters that could impact tens of millions of people due to the overcrowded nature of the country and lax environmental standards.

North Korea Collapses A collapse of the totalitarian regime in Pyongyang could result in a flood of refugees attempting to enter China.

China: Economic Risk Outlook

  • China’s economy is virtually recession-proof at the moment, but there are a number of risk factors that bear watching in the future.
  • For example, labor costs in many areas of China have risen sharply, reducing these areas’ export competitiveness.
  • Second, overcapacity is a growing problem in many sectors of the Chinese economy.
  • Local- and regional-level government debt has risen to unsustainable levels in recent years.

China Demographic and Environmental Outlook

China: Population Overview

China’s one family, one child policy is paying dividends.  The population of China is growing at an ever slower rate and within 20 years will peak at nearly 1.5 billion.  Without this policy, China population could have been approaching two billion by the year 2050 and it would have been difficult for China to sustain such a large population.

Not only has China’s “one child” policy resulted in a major reduction in overall population growth, it has also led to a rapid aging of the population.  In fact, the percentage of China’s population below the age of twenty will fall from 30% today to only 20% by the year 2050, while the number of people over the age of 80 will reach an astounding 118 million.

East Asia And Pacific Population Trends By Country

China: Leading Urban Centers

Summary:

  • China is home to more large urban centers than any other country in the world.
  • No single urban center dominates China, although Shanghai, Beijing and the Pearl River Delta are among the most important urban areas in the world.
  • As migration from rural areas to urban areas continues in huge waves, China’s urban cities will continue to realize significant population growth.
  • Pollution and overcrowding are two of the leading challenges facing China’s urban centers.

Household Structure in China

  • Even as China’s population growth continues to slow, the number of households in the country continues to increase at a relatively stable pace. This is due to the fact that an ever higher share of the Chinese population has reached adulthood. Furthermore, the increasing affluency of sections of the Chinese population is allowing young adults to leave their parents’ home at a younger age than ever before.
  • In China, a large percentage of households are in apartment complexes, given the extremely overcrowded nature of the country. China’s rural population also remains very large, but is shrinking as increasing numbers of people move from the countryside to the cities in search of jobs.
  • Looking ahead, the number of households will begin to level off by the middle of this century.  Meanwhile, the average household size will continue to shrink to levels closer to those of the more developed countries in the region.

 

Key Demographic Issue in China Overcrowding

Most of China’s 1.3 billion inhabitants live in the eastern half of the country.

  • Some sections of eastern China are among the most crowded in the world.
  • China’s most crowded regions are in the Yangtze and Huang He river valleys and near Beijing and Guangzhou.

China’s population density will result in tremendous strains on the country’s environment and infrastructure.

  • Energy and water needs in China will multiply dramatically in the years ahead.
  • Little land in China remains unused, with agricultural land already pervasive

China’s policy of drastically reducing the country’s birth rate may have saved China from an environmental disaster.  Had rapid population growth coincided with the current industrial expansion, the strains on China’s environment through increased energy consumption and pollution would have led to an ecological disaster.

Statistics In Focus:

Tibetan Population in China

China: Topography and Climate

  • Most of China is covered by mountains or plateaus, with the only significant lowland areas found near the lower courses of the Huang He and Yangtze rivers.
  • The highest regions are located in western China, with the Tibetan Plateau covering an area the size of Alaska and having an altitude higher than 4,000m (13,100 ft.).
  • Northern and western China have dry, continental climates.
  • Summers are generally very hot with most of the year’s rainfall, whereas winters are often very cold.
  • Further south, the weather is much wetter, with warmer temperatures prevailing throughout the year.

 

Key Environmental Issues:

The Three Gorges Dam is designed to stop the flooding that has plagued the Yangtze River valley and to generate electricity for a huge area of central China.

  • However, the dams have resulted in the moving of 1.3 million people.
  • A 600 km long (375 mile) reservoir has been created by the dam.

Many of China’s larger cities suffer from extreme air pollution.

  • Beijing and the north-eastern industrial cities have some of the world’s worst air quality.
  • As the number of cars and trucks on China’s roads continues to grow rapidly, the potential for further problems are great.

Recent studies have shown that the deserts of north central China are spreading rapidly to the southeast.

  • China is creating a Great Green Wall of trees to stem this growth.
  • Beijing is threatened by the advancing sands and already suffers from severe sandstorms.

China: Demographic and Environmental Outlook :

Demographic Risk Outlook:

  • China’s “One Child” policy successfully stemmed the country’s runaway population growth, reducing current demographic risk.
  • However, China will face the prospects of a shrinking workforce in the coming years.

Environmental Risk Outlook:

  • China’s environmental risk is very high and it has a huge bearing on the environmental health of the entire world.
  • Fortunately, the Chinese government has lately shown a desire to tackle the country’s huge environmental problems.
By | 2019-01-02T16:20:18+00:00 January 2nd, 2019|Uncategorized|0 Comments

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