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AB 2000 studies

Alain Boublil Blog

 

7,4% : the chinese growth in 2014

The publication of the first estimate of Chinese growth for 2014 has been greeted in France with a surprising wave of negative comments: one can read almost everywhere that this would be its lowest level since 1990, people hastily interpret it as the sign of a slowdown, and some even wonder about the risk of a collapse. Coming from a country where we would love to reach 1% in 2015, these observations are cheeky.

It is obviously not the first time that this denial about China’s situation expresses itself. By keeping on predicting that the country would not carry on the task initiated by Deng Xiaoping's reforms 35 years ago, you end up hiding the reality. This is the story of the man who missed the train. He comforts himself by thinking it will derail. Metaphorically, a lot of French companies, unlike their German competitors, have missed the Chinese train. Keeping on explaining that this does not matter because the Chinese miracle will not last does not make up for lost ground. The case of Peugeot - its strategic shift towards China in 2013 - is exemplary in this respect: its recovery is directly linked to the fact that it has restarted its activity in the country he had neglected for 20 years, even though the company was one of the first to settle there.

Comparing growth rates over a long period makes no sense. Between 1990 and 1995 – period that is used to draw these comparisons - the GDP of China is on average $600 billion. A growth of 9% means an increase in production of about 50 billion. It is ridiculous at the planet’s scale. In 2014, according to the IMF China's GDP reached 10 350 billion. A growth of 7.4%  - albeit lower than before - corresponds to an increase in production of almost 800 billion. One might add that focusing that much on decimals, even though no country is able to assess its production with such precision few weeks after the end of the year, did not make more sense. The negative message that is sent is a real misinterpretation. China's weight in the world economy continues to grow. And this has two consequences for our companies. The market they might reach and serve becomes more and more extensive. But the downside is that Chinese companies are gaining a surface, thanks to their domestic market and the skills they acquire, which will make them tomorrow either formidable competitors or precious allies depending on the strategies adopted by the French companies involved. But to be aware of this, it is crucial for them to understand what is at stake and to get it right. 

For it is not only the size of the Chinese economy that is changing, by maintaining such a high growth, but it is also its structure. Chinese leaders are well aware of this transformation. They adapted their diplomacy to these new challenges. The time when China was the "world factory", that is to say, the contractor of Western companies is over, both because wage growth makes this model obsolete in many areas but also because Chinese companies have acquired in some areas an expertise that allows them to get out of this type of relation. The time when it was the Promised Land of commodity exporters is also set to go off: rising standard of living, which stems from the continued growth means more services but not more steel. The difficulties currently faced by Brazil - first victim of the super commodity cycle - are direct consequences of the irreversible transformation of the Chinese economy.

What we need to understand, even if it is hard to admit, is that China is approaching very quickly from the economic model of a developed country, as we know it, and even if its growth remains strong, it has less and less the profile of an "emerging" country. Exports will soon reflect this change. Less sports footwear and toys, and more trains and power, thermal or nuclear plants. Chinese Foreign policy is adjusting to this reality as shows the "New Silk Road" project. According to the historical tradition of the country, it consists in building partnerships with neighbouring countries, in the broadest possible sense, from Central Asia to Europe in order to develop infrastructures that will serve as links to stimulate trade in this new global network starting from Beijing. This project will be complemented by seaway transit.

Just like the old road taken by caravans to bring to the West precious raw materials much likened by courts and wealthy European merchants, shipping routes across the Indian Ocean will extend the economic influence of China up to the Middle East and even to the coast of East Africa. The recent discovery of vast deposits of oil and gas will certainly not - quite the contrary - slow this merging process. This new economic diplomacy is based on almost unlimited resources to fund these projects. Instead of accumulating US Treasury bonds, the Chinese authorities now prefer to make loans - often also in their own currency, which promotes its internationalization - to partner states to finance the construction of these great works. The ambition of Chinese companies knows no limits. This is spectacular in the railway industry: China National Railways, one of the two Chinese public sector giants, encouraged by the State to merge in order to make a total turnover of 20 billion, recently won a tender to supply 300 cars for the Boston metro. Contract Amount: nearly 600 million.

Rather than hold forth on decimals, it would be better to encourage, through intelligent and balanced partnerships, French companies to forge alliances with Chinese counterparts, which are obviously still far from mastering the products and techniques, but also from knowing how to adapt to the needs and legal contexts of developed countries. The Prime Minister will soon visit China. Let's hope that instead of echoing doubts about China's growth, he will promote the creation of this kind of partnerships. Our businesses and our economy, more generally, would have everything to gain.

 

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