Wealthy Nations Daily Update - China Growth

Over the last few months there has been a lot of negative press about the Chinese economy and we feel that it has been overly exaggerated. In 2015 Chinese GDP growth was 6.9%, and although this was the slowest annual rate in 25 years, it is still far greater than that of any major western economy, with the US coming in a distant second at 2.4%. Closer to home India did grow faster than China for the first time since 1999, with 7.5% GDP growth, however the Indian economy is less than 25% the size of China’s. To put this in perspective, the scale of the Chinese growth was the equivalent of adding an economy the size of South Africa’s to global GDP last year. To get the same results India would have to grow at 35% and the UK at over 20%. As Lord O’Neil, the UK’s commercial secretary, said in a speech a couple of weeks ago at the 48 Group’s New Year Gala dinner in London, “China’s growth is still the envy of any developed country”.

Added to this growth rate is the fact the Chinese authorities have already started significantly rebalancing the economy from export-led to consumer driven. The new engines of growth include high-tech industries, advanced manufacturing and of course services. As of the end of 2015 services made up 51% of Chinese GDP, this compares with the 2011 figure of 44%. In the third quarter of 2015 alone services grew by a staggering 8.6%. Along with this huge rise in the service industry, China has the largest number of start-up businesses. According to data compiled by UHY Hacker Young, the total of new businesses launched in 2014 was 1.6mln, over 90% more than in 2010. By way of comparison, in the same year start-up growth was 11% in the US, 51% in the UK and 40% in Germany.

The government in China is also making sure that its infrastructure matches its aspirations for the economy. In 2015 China invested over $120bln in its railways network alone. As of December 2015 there was 19,000kms of high speed rail (over 200kph) in operation with over 18,000kms under construction. And as we have mentioned before, China is also behind the setting up of the new Asian Infrastructure Investment Bank (AIIB) whose aim is to support the building of infrastructure in the Asia-Pacific region. The capital of AIIB is in the region of $100bln.

As the Chinese Vice-President Li Yuanchao said last month at the World Economic Forum in Davos, recognising that China does face challenges as it undergoes a ‘critical shift’ in its development model, “China’s economy still remains the main driver of the global economy, and as China enters a new norm, it will grow more steadily and in a more diversified way,” adding, “that the economy will further prosper is not blind optimism, but a prediction based on China’s current situation and strength”.