Opportunities In China: The Next 10 Years
In his keynote speech at the opening of the 18th National Congress of China’s Communist Party, Hu Jintao, the outgoing President of China, set a new target for economic growth, saying that China should double its 2010 GDP and per capita income by 2020. “On the basis of making China’s development much more balanced, coordinated and sustainable, we should double its 2010 GDP and per capita income for both urban and rural residents (by 2020),” Hu said. This is the first time that per capita income has been included in the country’s blueprint for economic development. Previous targets merely called for the growth of GDP, not of per capita income.
Based on its GDP of $7.3 trillion and a population of just over 1.3 billion in 2011, China’s GDP per capita was $5,414 at the end of last year. While that represents an impressive increase from less than $1,000 at the turn of this century, it is well below other countries. In 2011, China ranked 90th in terms of GDP per capita, far behind the United States, Japan and Germany, all of which were above $44,000. China’s GDP per capita is less than one-half that of Russia and most other former Soviet bloc countries.
Because a rising tide lifts all boats, ensuring the long-term, sustainable growth of China’s economy is an important goal for China’s new leaders. As signaled by Hu, though, the new leaders must also narrow the gap in income levels between the “haves” and the “have nots” in the country. How big is the gap between the richest and poorest in China? Like all things China, it’s big.
China’s population is made up of roughly 500 million farmers, 250 million migrant workers and 550 million urban residents who work in the industrial and non-agricultural sectors of the economy. In 2011, agriculture accounted for 10 percent of GDP, or approximately $1,460 per farmer. Meanwhile, China’s migrant workers are estimated to make $100 per month, or $1,200 per year. Taken together, the per capita income of China’s 750 million farmers and migrant workers is approximately $1,400, while the per capita income of China’s 550 million urban residents is eight times higher at $11,400.
Another way to calculate the income gap in China is to look at China’s per capita GDP by province. In 2011, Guizhou was the poorest province in the country with GDP per capita of only $2,540, while Tianjin’s per capita income of $13,048, the highest in the nation, was 5.1 times higher. Whether the income gap is eight to one, or five to one, it is large. By comparison, the GDP per capita of Delaware, the highest of any state in the U.S., is just over two times that of Mississippi, the nation’s lowest.
Assuming that China’s new leaders are successful in growing the economy and spreading the wealth, what are the best opportunities over the next 10 years? While China’s continued growth will provide opportunities in many industries, consumer products and services, technology (particularly environmental), agriculture, health care and financial services are five that will certainly benefit in this next round of the country’s development.
Consumer Products and Services: At its current level of per capita GDP, China is already the largest market in the world for cars and many consumer products, including most luxury goods. Another doubling of China’s GDP and GDP per capita will create a market for consumer goods unlike any the world has ever seen before. In addition to increased consumption by today’s high earners, another 750 million people are waiting in the wings to provide additional impetus to domestic consumption.
As incomes rise and an estimated 260 million people move from the countryside into China’s cities in the coming years, demand for all types of services will increase significantly. The government will encourage the development of China’s services sector because it uses less capital and natural resources, is non-polluting and provides jobs.
Technology: China must continue to industrialize. However, in response to higher incomes, wages and manufacturing costs, as well as increasing environmental concerns, China’s industrialization will take on a different shape over the next 10 years. The development of heavy industry will decline in importance, while the country will place increased emphasis on producing higher-value added, higher technology products. Chinese manufacturers want to move away from producing lower value-added products that rely upon the existence of cheap labor.
In order to fuel the country’s growth, China will embrace all forms of energy, from fossil fuels to nuclear to wind, solar and hydro. Environmental technologies that can help the country to clean up its air and water and provide the cleanest energy possible at an affordable cost will be much in demand.
Agriculture: As more people move off the farms to seek jobs in the cities, employment in agriculture will decline. In order to meet its goal of self-sufficiency in food, therefore, the productivity of China’s agricultural sector must increase, and the country has already set aggressive targets in this regard. Increased mechanization and the adoption of advanced practices in crop and livestock management will be needed to achieve China’s goals.
Health Care: As their incomes increase, so too will the ability of the Chinese to afford the best possible health care. Demand for the best medicines, advanced treatments and doctor and hospital care is already on the rise, and the government is now taking steps to open up the country’s health care system to foreign investment and technology. Making better health care more readily available is also an important part of providing a safety net for the 750 million low wage earners. All parts of the health care sector will see opportunities in the coming years—drugs, medicines, medical instruments, hospital management, senior care and specialized clinics, to name but a few. One cautionary note is that China’s health care sector remains heavily regulated, so patience will be required to operate in this sector.
Financial Services: Creating an effective system for distributing the large amount of capital that has already accumulated in China — getting capital to the companies and individuals that can use it best — is one of China’s biggest opportunities. China’s leaders recognize that, in any country, small and medium-sized enterprises (SMEs) are the largest job creators. China’s outgoing leadership has already started the process of opening up China’s banking system and financial sector, and the new leadership will certainly continue this initiative. The development of China’s capital markets will be one of the most important trends in China over the next 10 years.