Don’t despair about China
China announced that its economy grew 6.9 percent in 2015, the first time in 25 years that its gross domestic product growth was under 7 percent. The Western media and economy watchers raised a great fuss about a hard-landing of the Chinese economy and the so-called China risk to the global economy. Many believe the world’s second largest economy’s growth will fall below 6 percent this year. Beijing officials were pulled down a peg by a Western journalist questioning the reliability of the GDP data during a press conference. It must be tough to be in their shoes. A low figure will spook world markets and make people fear the China risk. A better-than-expected figure will lead to accusations of cooking the books.
The Chinese economy grew 7.3 percent in 2014 and lost 0.4 percentage point the following year. The Korean economy is estimated to have lost 0.6 percentage point from 2014 to hit 2.7 percent in 2015. So what exactly is a hard-landing? From the Western perspective, the Chinese economy is like a teenager who has been adding 10 centimeters (4 inches) to his height every year and suddenly is assumed to have stopped growing because he now grows only 6 centimeters.
Relatively speaking, a pace slowing to below 7 percent from double-digit growth could be alarming. But the scale of the economy must be considered. China’s GDP a decade ago was at around $2.3 trillion. In 2015, it quintupled to $11.4 trillion. Yes, growth is going to be slower in the future than it was in the past. But it is unfair to say that China has experienced a hard-landing.
China’s growth of 6.9 percent is hardly slow. In 2010, when China was growing at a 10 percent rate, the world economy grew 5.4 percent. In 2015, the global economy’s growth was 3.1 percent. The Chinese economy grew double the pace of the whole world in 2010. Last year, the gap was 2.2 times. Against the global economy, the Chinese economy actually expanded at a faster pace than five years ago. In 2010, China’s GDP was about 40 percent of that of the United States. By 2015, it grew to be 63 percent of the U.S. economy.
The Chinese economy changed greatly in its structure over the last few years. The share of GDP contributed by manufacturing slipped to 40 percent while the contribution of the services sector jumped to 51 percent. The slowdown is largely due to the manufacturing sector’s role in the economy being lessened. The services sector is estimated to have grown over 8 percent in 2015. The manufacturing sector is slowing but services are still expanding.
Foreign retailers make scant profit in China. Korean retail stores are packing up to leave China due to their poor performance. But that does not mean China’s consumption is dwindling or that its retail market has no future. It’s only the traditional brick-and-mortar shops that are closing. Online shopping now accounts for over 10 percent of retail sales in China. The Chinese check out goods in stores and make their actual purchases online. When online sales are counted in, consumption has grown by double digits. Sluggish business only describes the plight of traditional retailers. The online industry is booming.
The Chinese economy is now being driven by the service sector. The slowing manufacturing sector has brought down GDP growth to under 7 percent. But the services sector growing at a rate over 8 percent will offset any further slowdown and repower the economy.
China is in a transitional phase. Once it is finished with restructuring, it will be stronger. We must shift our eyes to the burgeoning new consumption areas instead of concentrating on old, withering industries. Cornering is a crucial skill in race car competitions. A driver doesn’t win by driving in a straight line. Korea must master its skill at figuring out which way the Chinese economy is turning and follow it.
China is on the same path as the United States. The economy is veering away from old fashioned, smoke-stack factories to be led by high-tech companies and the service sector. Korea successfully navigated changes in the U.S. market. If we show the same skill with China, we can benefit greatly from Chinese transitions wherever they go.
The United States outsourced manufacturing overseas and profited from IT industries and all the innovation they stand for. As Asian countries got caught up in IT, the United States is seeking new growth from Internet and mobile IT services innovations. The Internet of Things and online-to-offline businesses are the new U.S. innovations. Economies of scale triumphed in the old days of manufacturing days. Speed wins in the IT age. In IT services, the company with the biggest number of followers or subscribers wins. Mobile subscribers total 320 million in the United States. The number is 1.3 billion in China. The United States may have the technology but China has the market.
We must not fret over the areas that do poorly in China. We must capitalize on where China is strong. We can sink together or we can get on the back of the soaring services and high-tech sector.
Translation by the Korea JoongAng Daily staff.
JoongAng Sunday, Jan. 24, Page 19
*The author is the director of the China Economy and Finance Research Institute.
BY Jeon Byeong-seo