What’s Next For China?
There have been a lot of spot light on China economy for the past several years. With US economy slowing down in Q4 last year, China seems to play a major role to prevent the whole world from dipping into a recession with 11.2% GDP growth in the same period. Notice that without Fed’s aggressive rate cut and money lending, US economy would be in the negative territory already. Obviously, China can cushion the incoming recession to a certain extent, given the fact that export is about 40% of its GDP. A sharp slowdown in US economy will still be disastrous to the rest of the world.
The latest China news came out from last Friday’s Nightline. The topic, surprisingly, is about stem cell treatment. Thanks to the US Stem Cell Research policy, people have to go abroad for such kind of treatment. China, as a low label cost country with decent scientific research in biotechnology, becomes one of the best places in the world. The medical treatment center mentioned in the program is located in Hangzhou, a city that I have visited in my recent China trip. China’s success is no longer limited to manufacture industry.
Another example is IT industry. Here, I have blogged several events from HYSTA, a prestigious professional association for Chinese entrepreneurs in Bay Area:
- The Alibaba Story — John Wu, CTO of Alibaba.com
- Strategy And Business Model For Internet Startups: China Vs. The US
- Fireside Chat With Yongping Duan
- Web 3.0? – Catch The Next Internet Wave
- Min Zhu’s China Story
- The Story Of Ctrip’s Success: Past, Present And Future
Actually, I helped organize and host the last three events. More interestingly, for the ctrip event, there is a blog titled as “Ctrip: The Chinese Are Coming” from Seeking Alpha.
After all these positive things, let’s face the bottom line of China. The poverty line in China is 1200 Yuan a month, which translate into about $3500 annually. A lot of Chinese earn even less. China government is still less efficient compared to US, which means that it costs China much more to keep its growth. In the long run, there will be a turning point when China will be forced to do a big surgery to fix its economy system. In the past several years, China has tied its currency to US dollar for both export and job creation, resulted with aggressive monetary expansion, which causes both high inflation rate and high risk of investment speculation. There are two recent news reveal the severity of the two problems:
- First time within 6 years, a lot of manufacturing companies close doors because of increased cost.
- Real estate price in second tier cities starts to hike up.
Except food, lodging and transportation, everything in China, including real estate, is equal or more expensive than goods in US, which is really a big shock for me. It has been only 6 years since I visited China in late 2001. Living cost is extremely high for local people.
Another major concern is that local governments react slowly when facing major disasters. Use both SARS and the recent snow storm as examples. Until both the president of China and the prime minister reaches the front line, nothing effectively has been done. To make the matter worse, local governments or local officials spend more time to cover things up instead of finding the right solutions. Though, once the government started to react properly, everybody follows with incredible discipline.
Given the massive complexity that China has, its future is hard to predict. Though, the incoming global recession will be a good challenge whether China can sustain its growth during global downturns and become the true world growth engine.
