01 December 2013
International Business Paper
China’s Upcoming Economic Transformation and Its Business Opportunities
In the world of global business the only thing constant is Change. Changes can come in many forms, some are market driven some are policies driven. Whatever the cause may be, certain changes be profoundly impactful; business leaders need to adapt and prepare their businesses to maximize profits in the future. This paper will touch briefly on some of the steps China is taking to better position itself to reach the higher level on the ladder of the global economic pyramid and stay competitive in the global business arena.
In the past 30 years, China’s GDP jumped to the second place in the world, it has become the world’s largest trading nation and manufacturing base. China almost seemed an unstoppable economic force. However, there are heavy prices for rapid growth of the economy focusing mostly on the GDP numbers while overlooking many other social and environmental factors. Some significant vulnerable factors that could seriously threaten the long term prosperity of the Chinese economy are: overly export dependent, massive environmental degradation and excessive government intervention that leads to resource allocation injustice and inefficiency. The Chinese economic development model which focused on high export volume supported by low wage workers and cheap raw materials had become unsustainable.
Chinese leaders realized the need to change their economic development model. They decided to stop blindly relying on exports and investments as the main force of economic growth, instead they want to focus on domestic consumption and technological advancements as the new engines for growth. As an authoritarian government its state sponsored institutions have almost a monopoly of power to make the necessary policy changes to suit their agendas. Major policy changes affecting the Chinese economy have been made just recently, massive amount of economic opportunities await for those that are willing to act. Let’s look at where China is and where is it headed next and how people can benefit from its strive to achieve economic prosperity.
THE FIRST STAGE OF CHINA’S ECONOMIC TRANSFORMATION
The first stage of China’s economic transformation was industrialization. Commodity producers benefited from China’s active demand for natural resources. Exporters benefited from China low cost labor and relatively loose regulations. In the past two decades, China’s competitiveness advantage replied on the high volume and low cost. China’s economic transformation is more like a two way street, it leads to job loses for some developed economies; however it also curbs inflation, and made many consumer goods inexpensive and within reach for the mass.
THE SECOND STAGE OF CHINA’S ECONOMIC TRANSFORMATION
This stage transformation is intended to upgrade China’s industrial structure from extensive, bottom-end of the market and high resources consumption to higher end products manufactures that focus more on technological innovations, productivity, effective energy conservation and environment protection. The model for economic growth will gradually turn to the domestic market and the regional economies through comprehensive economic engagement, not just exports.
Intuitional based changes that will impact the global business world
According to the newly announced reform plans by the Chinese government (State), they are loosening the one child policy which could mean 10 million more babies in 5 years. (Song) With these many more millions of babies to raise we are looking at $790 billion in additional spending by Wall Street Journey’s calculation. Imagine the boost to any of the prominent baby product producers upon this welcoming policy change.
The Chinese government is planning to move some 300 million people from the country side to the cities by 2030