+RZFDQ&KLQDUHYLYHLWVVOXJJLVKHFRQRP\"4XRUD

(FRQRP\RI&KLQD ,QWHUQDWLRQDO(FRQRPLFV &KLQD (FRQRPLFV

+RZFDQ&KLQDUHYLYHLWVVOXJJLVKHFRQRP\" 7KHUH
VPRUHRQ4XRUD
3LFNQHZSHRSOHDQGWRSLFVWRIROORZDQGVHHWKH
$QVZHU 5H$VN )ROORZ  &RPPHQW  6KDUH 'RZQYRWH EHVWDQVZHUVRQ4XRUD 
$VNRU6HDUFK4XRUD $VN4XHVWLRQ 5HDG $QVZHU 1RWLILFDWLRQV 6KUH\D
8SGDWH<RXU,QWHUHVWV
$QVZHUV

'DQLHO&RKRUW%LJ'DWDSURIHVVLRQDOLQ&KLQD 4XHVWLRQ2YHUYLHZ
9LHZV'DQLHOKDVDQVZHUVLQ&KLQD

1.Production
Manufacturing:Chinesegovernmentlaunchedanairplanemanufacturing )ROORZHUV
businessnamedCOMAC.Within10years,we'llseeChinamadebigplanesflying
,Q)$4IRU(FRQRP\RI&KLQD
alloverChina'ssky.Theaerospaceindustrytogetherwithotherheavyindustries
couldliftChinauptheinternationalmanufacturingvaluechain.Theindustrial 9LHZV

roboticsindustryalsostartedtotakeoffinrecentyearswithChinabecomingthe 9LHZ0RUH
largestbuyerofindustrialroboticsin2014.
Services:Chinahasaflourishinginternetindustry.Educatingmorepeopleon 5HODWHG4XHVWLRQV
howinternetmodelworkscreatesmoreentrepreneursandinnovations.Chinese
governmentlaunchedtheInternet+initiativetoencouragethemasspublicto :KDWFDQ$PHULFDQ\RXWKGRWRUHYLYHWKHHFRQRP\"
buildtheirownstartups.Chinaisalsoagloballeaderinquantum
telecommunications.In2016,Chinaplanstolaunchthefirstquantum (FRQRP\RI&KLQD:KDWDUHWKHUHDVRQVRIWKDW
5HQPLQELLVVWLOODSSUHFLDWLQJHYHQZKHQWKH0LV
telecommunicationssatelliteintheworld.Estimatedlyby2030,afullfledgedQT
GRXEOHGVLQFH50%WULOOLRQVWLPXOXV"
marketwillbeformedwhichmightrevolutionizethewaypeoplecommunicate
witheachother. &KLQD&XUUHQF\'HYDOXDWLRQ:KDWZLOO
WKH\XDQGHYDOXDWLRQRIGRWRWKH86HFRQRP\"
2.Consumption
OneproblemwithIndia'ssoftwareindustryisitistotallyoutsourcingbasedand &KLQD&XUUHQF\'HYDOXDWLRQ'RHV
ithasnodomesticmarket.Tosomeextent,thesamestoryistruewithChinese %HLMLQJ
VVXUSULVHGHFLVLRQWRGHYDOXHWKH\XDQE\
RQ$XJXVWPHDQWKDWLWVHIIRUWVWR
manufacturing.iPhonesarestillconsideredluxuriesinChinawheremostpeople
FKDQJHWRDFRQVXPSWLRQGULYHQHFRQRP
buycellphonesat$100$300.Toclimbuptheinternationalvaluechain,China
needsalargerdomesticmarketforconsumergoodswithhigheraddedvalues. (FRQRP\RI,QGLD,QGLDLVVDLGWRKDYHKLJKHUJURZWK
Chineseconsumptiongrowsatanannualrateof15%.Thisisastaggeringspeed, UDWHLQUHFHQWWLPHVFRPSDUHGWR&KLQD+RZGRHVLW
butIguessiftheChineserealestatebubbleiskilledthegrowthratecouldbeeven DIIHFWWRDFRPPRQPDQLQ,QGLD"
higher.
&KLQD:K\VKRXOGQ
W&KLQHVHSHRSOHILJKWIRU
GHPRFUDF\"$UHWKH\UHDOO\KDSS\ZLWKWKHLUSUHVHQW
3.Investment
JRYHUQPHQW"
Economyisallabouttheallocationofresources.Chinesegovernmentgaugetheir
officialsbasedontheGDPgrowth.Sinceinfrastructurebuildingandrealestate &KLQD:KDWDUHVRPHPLQGEORZLQJIDFWVDERXW
areeasywaystoboostGDPandmakemoney,theyhavebecometwomajor &KLQD"
venuesofgovernmentdirectedfunding.Rethinkingtheofficialevaluationsystem
&KLQD:KDW
VH[DFWO\WKH&KLQHVHJRYHUQPHQW
V
couldhelpbetterallocateeconomicresources.
PRGHOIRUSURPRWLQJHQWUHSUHQHXUVKLSLQDFRPPXQLVW
:ULWWHQ$XJ9LHZ8SYRWHV HFRQRP\"

&KLQD:KDW$PHULFDQWHOHYLVLRQVHULHVDUHPRVW
SRSXODULQ&KLQD"

$ODQ*RX6WXGLHG&KLQD (FRQRP\RI&KLQD:RXOGFKLQDVLQFUHGLEOH
9LHZV HFRQRPLFJURZWKKDYHVWDJQDWHGKDGLWSDLGPRUH
DWWHQWLRQWRHQYLURQPHQWDOSURWHFWLRQ"
WhileChina'seconomicgrowthhasslowedconsiderablyfromthedoubledigitratesthat
characterizedthebeginningofthe21stcentury,itisbynomeanssluggish.Itisstillthe 0RUH5HODWHG4XHVWLRQV
fastestgrowinglargeeconomyintheworld,aheadofanyoftheBRICcountriesataround
7percentannually. 7RS$QVZHUVLQ\RXU)HHG 9LHZ0RUH

Whatismoreimportantthanthenumberassignedtoitsgrowthisthecharacterofthat
growthandhowitischanging,frominvestmentledgrowthtoconsumptionledgrowth. &DQ\RXJLYHPHDVKRUWLQVSLUDWLRQDO
PHVVDJH"
$QVZHUHGE\6DQJHHWD*RHO6WRU\WHOOHU$XWKRU
Beforenow,China'sgrowthwasspearheadedbymassiveinvestmentsinconstructionand
5HVHDUFKHU
infrastructure,whichiswhyitnowhastheworld'ssecondlargesthighwaynetworkinthe
world(over4millionkilometers,behindonlytheU.S.,whichhasover6millionkilometers)
andahighspeedrailnetworkthatliterallydwarfsthatoftherestoftheworldcombined
(lookhereListofhighspeedrailwaylines ).

KWWSVZZZTXRUDFRP+RZFDQ&KLQDUHYLYHLWVVOXJJLVKHFRQRP\ 
 +RZFDQ&KLQDUHYLYHLWVVOXJJLVKHFRQRP\"4XRUD

:KDW
V1DUHQGUD0RGLOLNHLQSHUVRQ"
Duringthisperiodoftime,factories,powerplants,andhousingdevelopmentsroseupata
$QVZHUHGE\6PLW0HKWD*RRJOHU
scaleandpacetheworldhadneverseenbeforeandChina'sappetitefornatural
resourcesgrewaccordingly.Muchofthereasonoilpricesrosesomuchduringcertain
periodsinthepastdecadewasbecauseofthisinsatiableappetiteitneededtofuelnew
jetliners,cargoships,andautomobilesinthemillions.
8SYRWH  :KDWLVWKHEHVWWKLQJ\RXKDYHKHDUG06'VD\
'RZQYRWH &RPPHQW  6KDUH
IURPEHKLQGWKHVWXPSV"
$QVZHUHGE\(NDUDW9LYHN3V\FKRORJLVWWKLQNHU
Butacountryof1.4billionpeopleisravenouslyhungryfornotjustfood. OHDUQHUFRXQVHOORUSROLWLFDODQDO\VHUDJQRVWLF

Thateconomicgrowthsawhundredsofmillionsliftedoutofpoverty.GDPpercapitarose
tremendouslyandanewmiddleclass,thelargestintheworld,appearedalongwithit.
Withnewdisposableincome,thesemiddleclassfamiliesbegantopurchaseiPhones,cars,
Tvs,camerastheybegantogoonvacationtoParis,SoutheastAsia,andAmericain
short(andveryquickly),theconsumeristsideofChinawasunleashed.

Thissidewillbeveryimportantinthecomingdecades.Chinesegrowthisslowingdownat
themoment,formanyreasons.Risingincomeshavemeanthigherwagesandcostsof
living,whichmeanspreviouslyprofitablefactories(operatingonrazorthinmargins)now
mustclosedown,andstillprofitablefactoriesseeadecreaseintheirreturnoninvestment.
TheseindustrieswillseemoreandmoreworkshifttoSoutheastAsia,tocountriessuchas
VietnamandThailand.Additionally,therateofinfrastructureandhousingconstruction
hasslowedassomeplacesexperienceaglutinsupplyandthecosteffectivenessofeach
newprojectdecreases.ThisdoesnotmeananendtoChina'sgrowth,though,butrathera
changeofgears.

Aslowendmanufacturingshiftstoothercountriesandconstructionslows,China's
manufacturingsectormustmoveintohigherendindustries.Thismeansjetturbinesand
highprecisioninstruments,siliconchipsandmoreindustriesthathavebeentraditionally
dominatedbytheU.S.,Taiwan,andotherprominentmanufacturersofhightechgoods.It
isalreadypartwaythereafterall,theydomaketheiPhone(albeitunderaTaiwanese
company).

Butmorethanthat,China'sconsumermarketmustalsopickuptheslackwhereits
investmentledgrowthleftoffthismeansdomesticfirmsoughttoriseupandservicethe
needsofChina's1.4billionconsumersbyprovidingbabyformula,entertainment,life
insurance,etc.

Thecentralgovernmentrecognizestheneedforthischangetooccurandismakingefforts
toencouragesuchashifttighterregulationsonfoodproducts,forexample,whichisone
ofthemostcontroversialissuesinthenationandonethatnearlyeveryaverageChinese
personisawareof.Butthereareheavilyentrenchedinterestgroupsthatstilldependon
constructiontofilluptheirpocketbooks,sotheprocessisnotsospickandspan.ButIdo
believethisshiftwilloccursuccessfully.Andno,Chinawillnotsomehowplummetback
intotheStoneAgeaftersomehowstumblingintoarecessionbecausethepropertybubble
popped(thoughthatbubbleisprettyscarytolookat).Itisanecessaryshiftandonethat
willhopefullyhelpitcontinuetoraiseitslivingstandardswithoutaccompanyingrisesin
pollutionandfoodcontaminationscares.Itwillalsoinfluencethecharacteroftheworld
economyasfirmsacrosstheglobeshifttheirowngearstomeetthegrowingdemandofthe
world'slargestconsumermarket(notthattheyhaven'talreadybeendoingsoforyears).
:ULWWHQ-XO9LHZ8SYRWHV

8SYRWH  'RZQYRWH &RPPHQW  6KDUH

%RWDR-LDQJ)LQDQFLDODFFRXQWLQJLQFRPHWD[%RRNNHHSHU
9LHZV

IfyousimplelookfromaGDPperspective,wecanroughlydivideGDPintosectorsof
agriculture,industry,andservices.
AccordingtotheCIAHandbookthisisChina'sGDPcomposition:
agriculture:9.2%
industry:42.6%
services:48.2%
(2014est.)
ThisistheU.S.GDPcomposition:
agriculture:1.6%
industry:20.7%
services:77.7%

KWWSVZZZTXRUDFRP+RZFDQ&KLQDUHYLYHLWVVOXJJLVKHFRQRP\ 
 +RZFDQ&KLQDUHYLYHLWVVOXJJLVKHFRQRP\"4XRUD
(2014est.)
IfyoulookatotherlargeGDPeconomies,ormoredevelopedcountriesliketheUS,theyall
havehigherservicesectorcomposition.
Japan:
agriculture:1.2%
industry:24.5%
services:74.3%(2013est.)
UnitedKingdom agriculture:0.6%
industry:20.6%
services:78.8%
(2014est.)
ofcoursetherearesomeoutliers,likeGermanyorSouthKoreaintermsofindustrysector
percentages,butwecanagreethatwecannotpindownaneconomyjustbasedon3
variables.
ChinaasadevelopINGcountryhasbeentryingtomodernizeitscitiesforawhile,but
becauseofthevastpopulation,itstillneedstocontinuetobuildandmanufacture.
However,inordertomovetowardadevelopEDcountry,itwouldneedtotransfersome
industrialactivitiesintoservicesectoractivities.WiththeChinesecurrencyappreciating
comparedtolesserdevelopingcountries,itisfacingpressuretomovefromlowskilled
labortohigherskilledlaborcommoninservicesectors.
:ULWWHQ$XJ

8SYRWH 'RZQYRWH &RPPHQW 6KDUH

7RF%L]&KLQDKWWSZZZWRFEL]FRP/LYH8SGDWHV$ERXW&KLQD
V(FRQRP\DQG
)LQDQFLDO0DUNHWV
9LHZV

Ithinkit'sveryhardanditwilltakealongtime.Chinaeconomyhadbeendrivenbyexport
andinvestmentinthepastthreedecades,butnowbothofthemareunlikelytobounce
backinnearfuture.Thecountryistryingtomakedomesticconsumptionitsmajor
economicengine,butittakestimeforittogrowstrongenoughtooffsetdecliningofexport
andinvestment.
VisitthesiteforChina'sEconomyandFinancialMarkets
:ULWWHQ'HF

8SYRWH 'RZQYRWH &RPPHQW 6KDUH

$QVZHUV&ROODSVHG:K\"

KWWSVZZZTXRUDFRP+RZFDQ&KLQDUHYLYHLWVVOXJJLVKHFRQRP\