China and 'the New Different'
With the Chinese economy hitting tough times, Your e-network speaks to Professor David Dickinson, Director of the Birmingham Business School China Research Cluster, to get his views on the current situation.
“Since the start of the global financial crisis in 2007, the huge growth rates seen in the Chinese economy have slowed,” he explained. “For a long time in the 80s and 90s, these high rates reinforced themselves, but the country now faces a struggle with much slower growth (although the rate is still high by developed country standards.
“What we see now is a point where China is experiencing both the benefits and the costs of truly being part of a global economy.”
There is no doubt that China’s economy is maturing quickly, and as a consequence of this growth, and a huge demand for labour, wages have increased.
David: “This means that China needs to change from a country that replies heavily on a low wage labour force exporting to the rest of the world to one that works to increase the power of the Chinese consumer. We need to see a shift to a people-led economy.”
This means developing a financial sector that encourages economic growth by stimulating domestic demand, private enterprise and risk-taking
“In general well-off Chinese households and businesses save hard,” said David. “It’s not unusual for houses or business premises to be bought with cash, without any input from the bank. The financial sector doesn’t currently provide the same level of borrowing opportunities as in other parts of the world which is why there is far less lending to households and small businesses in China. However, to change this and sustain economic growth, there will need to be a range of policy changes to encourage the switch.”
There is little chance that the China will return to the same levels of growth that it has seen over the past 30 years, but instead of adopting what the Chinese government refers to as ‘the New Normal’ which implies things will be the same but at a lower level, David believes the country will need to establish a ‘New Different’ implying a major rethink about how the economy works.
“China will need to do more to create globally needed brands, products and industries rather than just making things for the rest of the world. There are already moves to do this with white goods, electric cars and in the nuclear industry, but more needs to be done.
“There will of course be successes and failures in this new approach. There isn’t currently the same acceptance of risk in the Chinese stock market as in the rest of the world. To be a successful and entrepreneurial market-driven economy, this will need to change.”
The China Research Cluster
The China Research Cluster brings together a range of experts on China from diverse areas like financial markets, entrepreneurship, climate change and energy.