2018 China: Trends & Challenges

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I’ve been following the top stories, investments and business partnerships coming out of China.  Here is a summary of the top trends and challenges that I have seen in the first quarter of 2018.  In general, China is poised to continue its growth and global significance throughout 2018.  President Xi continues to strengthen his position and agenda through the large scale placement of government officials at all levels of the government that are aligned to his direction.   This could see China’s ability to implement new policies and enforce complicate rise significantly.  Though it is not clear sailing ahead with many long standing challenges that continue to grow in magnitude including:

  • More complex relationships on the international scene including heightened tensions with the current USA administration.
  • Vast regional disparities in terms of infrastructure, demographics, and types of support needed at different levels of development.
  • An aging population that brings many needs for services but also offers a large amount of consumer savings that can pay for new aging service industries.
  • Declining heavy-industrial sectors as the scale of infrastructure development slows and more emphasis is placed on smart cities and sustainability.
  • Property values have not crashed yet, but many places are stagnated and many fear it could be a large economic impact in the coming year or two.
  • Debt levels are on the rise as more people seek investments in new ventures.
  • Environmental pollution is an issue that could demand attention as many cities boarder on ecological crisis that could result in large scale health issue.

Now look more to the opportunities and trends we see several areas where large scale effort and investment are being focused:

International

  • China remains slightly ahead of its goal to double GDP by 2020.
  • Many global-scale Chinese companies are still primary focused in China,  but they are anxious to scale internationally.
  • Soft power is a key global strategy with China that is capitalizing on international tensions between the USA and many of its rivals or long standing partners.   China is using this time to become that alternative option to partner with.
  • Belt and Road will remain the flagship international state-to-state collaboration program for building China-sponsored infrastructure around the world and this creates opportunities for all parities to form deeper relationships with China.
  • China is also looking to attract more foreign direct investment into China’s growth.  One region of interest is the Greater Bay Area ( GBA), which is the coordinated development of Guangzhou, Shenzhen, and Hong Kong.

Industry

  • Manufacturing is still at the forefront of many of China’s industry priorities.
  • Artificial intelligence (AI) and the Internet of Things.
  • The development of EV cars and mass transit have goals established both with incentives and penalties for not meeting them.
  • Battery technology and production will lead the EV automotive industry growth in the early years.
  • Green industry growth for more sustainable solutions are also at the forefront of governmental priorities in the development of smart cities; with over 30 cities proactively working to hit their green goals by 2020.
  • Car sales continue to rise rapidly in China as the middle class rises.  This is despite the large scale traffic and congestion problems in many of its major cities.   This also drives the government priorities about both EV car offerings and IoT lead smart cities to address the traffic challenges.
  • China’s pharmaceutical industry is growing rapidly producing many new product offerings each year and is also licensing the use of many new chemical/molecular discoveries.
  • Outcomes based health insurance is also changing the landscape of the consumer insurance and healthcare systems.
  • Steel, Cement, Coal – should stabilize and shrink in decades to come following trends similar to other industrialized countries that also had rapid rise and stabilization.
  • Wealth management is becoming a huge industry in China for both domestic and foreign financial sector players.
  • eSports is a rapidly growing entertainment industry gaining momentum in both profitability and consumer interest.
  • Many multi-national corporations are seeing the need to partner with large Chinese companies that have a depth in big data market analysis.  An example would be the Alibaba and Ford partnership.
  • A concerning trend in all consumer sectors has been the dramatic drop in consumer trust.  It is widely believed that corruption has spread too deep.  The rise and large scale of adoption of digital currencies as the back bone of transactions has help reverse the trends.   In addition, the digital abilities for P2P transactions help increase a buyers confidence that it is not a scam by working directly with the sellers.

Government Centralization and Control

  • China’s centralized anticorruption agency have been sent police against corruption within the government.   The a unified National Supervision Commission, Beijing will have an easier time rooting out local noncompliance and making an example of officials and executives.
  • Cash will become obsolete in China by 2020 and this means that financial flows are easier to monitor, centralize and analyze spending within the country.
  • Facial-recognition technology has progressed so that the public security bureaus can use AI to identify the movement of people.  Everything from locations of officials, terrorists, criminals or missing children stolen from their families.
  • The government is seeing the power in platforms and is looking to expand its infrastructure to track more data and provide services over these platforms.  Especially in areas of studying the advances in the smart cities programs.

 

Sources included:  McKinsey, Forbes, China Business Review, Alizila

 

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