The country defines a new phase past double digit growth and its role as a world factory. Now that its economic objectives have been achieved, what happens now?
Pure Casualty has made that, for once, horoscopes and economists coincide in a forecast. China will begin on Sunday the year of the metal rat, which marks the beginning of a new cycle for sixty years and promises, according to experts, it’s a radical change. The world’s second largest economy leaves behind decades of unstoppable growth at any price to embrace a new stage in which it will have to digest that progress and define its role on a global scale.
Fashion has been the first witness of China’s transformation in recent years and will also occupy a leading role in its next stage. If in 2005, with its entry into the World Trade Organization (WTO), China became the fashion factory, in 2022 it will become the largest consumer market, according to data from Euromonitor International.
Between 2018 and 2022, fashion sales in the country will amount to 10.2%. In 2024, the revenue of the sector in the country will total to 435 billion dollars, compared to 384 billion in the United States and four times more than what India will generate, with 100,000 dollars, according to Euromonitor.
The country will continue to be an important pole for the supply of textiles and clothing, although in recent years it has begun to shift its focus towards products with greater added value and outsourcing the rest to surrounding countries such as Bangladesh. China is also one of the main foreign investors in Ethiopian textile, considered the next hub in the sector.
China is the largest textile exporter, accounting for 37.6% of global sales, compared to 10.3% in 2000. Chinese exports of this product category amounted to 119 billion euros (133 billion dollars) in 2018, according to the latest data from the World Trade Organization (WTO). The country is also the third largest importer of textiles, after the European Union and the United States.
In clothing, the country covers 31.3% of exports but still has a small market share in purchases, with a 1.6% share (excluding Hong Kong). In 2018, the country exported ready-made clothing worth 158 billion dollars, in line with the previous year. In fact, overseas sales specific to this sector have been growing for four years now, after ending 2016 with a 9% drop; 2017 with a decrease of 1% and 2018 in flat.
2020 is also marked in red on the country’s calendar, which had set several economic goals for 2020 at the gates of the centenary of the Communist Party, which will be held next year.
One of the goals was to double its Gross Domestic Product (GDP) between 2010 and this year. China is already the world’s largest economy in terms of GDP at purchasing power parity values (PPP) and all projections suggest that it will meet that goal this year, even though the economy is slowing down.
To achieve the goal, the country should have grown on average of 7.5% a year since 2010. The decade started strong, with a rise of 10.3% in 2010, but since then the country has lost its momentum. In the third quarter of 2019, China grew 6%, its lowest rise in thirty years. To achieve the goal set by the previous president, Hu Jintao, China should grow at least 6%, a goal that seems realistic.
Similarly, its GDP per capita has skyrocketed in recent years, from 3,468 dollars in 2008 to 9,770 in 2018 dollars. In 2015, with Xi Jinping at its front, the country set itself the goal of eliminating extreme poverty, defined as the number of people with an annual income of less than 2,300 yuan (334 dollars). In 2015, there were more than 50 million people in that category, in 2018 the 20 million barrier was lowered for the first time and this year’s goal is to reduce the data to zero.
In the recent decades, China has become the largest factory in the world, it has industrialized at a hectic speed and has climbed from the tenth to becoming the second-largest world power in just twenty years. A process that took Europe centuries has been achieved in a generation by China. So what is its next step?
The country has been immersed in a process of transformation of its economic model for several years, with the aim of shifting from being a country backed by industry, with hardly any social guarantees or environmental regulation, to a consumer economy, open to the world and following Global standards.
Hamish McRae, author of the book The World in 2020, published in 1994, anticipates in an article in The Economist that, in 2050, China “will clearly be the world’s largest economy, but its ageing (and declining) population will push it back it from a vision of global dominance towards making life secure and more comfortable for its own people.”
Demography is in fact, one of the main challenges for the country. Although it stopped the one-child policy five years ago, the decision did not suffice to reverse the sliding trend in birth rate. The most optimistic forecasts of the Government indicates that by 2020, births will not exceed 16 million.
According to the United Nations, the Chinese population will be reduced by 31.4 million people, or 2.2%, until 2050. In less than a decade, approximately in 2027, India will surpass the country as the most populous in the world.
China had set the goal of doubling its GDP between 2010 and 2020
This means that the great transformation will be confronting the aging population before even having developed a social protection system which will be added to the country’s transformation.
The transition in the economic model does not seem to be accompanied by a political transition. The country continues to be dominated by a single party, the communist, with an almighty president.
In the National People’s Assembly of 2018, a reform of the constitution was approved which eliminated the limit of the two five-year terms of the president, guaranteeing leadership to Xi Jinping beyond 2023, when planned.
In addition, the country has increased control over its population, it has strengthened censorship on the Internet and has been heavily criticized for its attacks on different communities in the country to impose the culture of “only one China.”
Demography is one of its main challenges: the Chinese population ages and shrinks
“The policies of the Chinese government inside and outside the country are a threat to the entire global system for the protection of human rights,” denounced last year the NGO Human Rights Watch.
The discontent with the Government has become tangible in the last year in Hong Kong, where thousands of people have taken to the streets the demand of a democratic system. There's a deadline hanging like Damocle's sward over the former British colony: the agreement of One Country, Two Systems ends in 2047.
Meanwhile, abroad, China continues to be in a trade war with the United States, although the tension has relaxed with the signing of the first phase of the agreement. The country will also face other challenges in its ambition to gain global influence.
The digital economy, with giants like Huawei, Tencent and Alibaba in the lead, has been one of the pillars of the country’s economic transformation. But in the last year geopolitics has come into play: Australia, Japan and the United States have already imposed tough restrictions on Huawei, citing security reasons, and countries like Canada, India or Italy are also considering imposing restrictions.
The country will celebrate its new year this Sunday, which marks the beginning of a new cycle
These limitations will not only affect the Asian giant: without access to Huawei, the development of 5G, the key to transformative technologies such as the Internet of Things, will depend on other more expensive providers such as Nokia, Ericsson or Samsung.
This transformation will also occur in a new global context, marked by the change course of the capitalist system itself that China has embraced in recent years. Terms in which progress has been defined in recent centuries may not be the same as in the future.
The aging of the planet and the expectation of a probable Japanization of the economy in developed markets, added to a greater awareness in terms of well-being and sustainability, could change the rules of the game. In fact, countries like New Zealand have already changed their standard for measuring progress, citing factors such as integration or respect for the environment.
The role that China will have in this new era is yet to be discovered, but at least, the horoscope supplements that: the rat, experts say, is a sign of leaderships, intelligence and those who always get what they set out to do.