China is changing. For so long, the world’s second-largest economy was a vacuum cleaner for capital across Asia Pacific. Now, slowing growth in China is creating significant opportunities elsewhere.
A study released in September showed US and European greenfield investment into China fell below $US20 billion in 2022, down from around $US120 billion in 2018. For businesses with long-held views about China and its place in the Asian economy, a reassessment of the landscape is required – and quickly.
Similar thinking applies for other Asian economies. In recent decades, the regions that succeeded in attracting capital were those that pursued a clear strategy.
Singapore targeted services and pharmaceuticals with a very clear strategy. Vietnam took a very deliberate approach to foreign-direct investment into manufacturing. Those that opened the door to foreign business without a clear strategy may have found China too hard to compete with.
But China is a different economic prospect today. It's no longer an automatic magnet for foreign direct investment, portfolio capital, credit investors or expats. The shift looks structural and reflects a range of long-lived reasons.
Not fade away
Of course, China isn’t going anywhere. It’s still half the region in terms of gross domestic product. Many economies across Asia Pacific owe much of their prosperity to China and an element of that will not change.
Even as it changes, China will continue to play a critical role in global trade. It is an $US18 trillion economy and a fifth of the world’s GDP. It's more than three times larger than Japan, and still more than four times larger than India, though India has plenty of room to grow.
Businesses, and even economies, need to engage with China to succeed - but in a way that's suited to the times. And the times have changed.
When China joined the World Trade Organisation in 2001, many organisations were quick to recognise something had fundamentally shifted and world trading patterns would never be the same. The movement of people would be affected for decades to come.
At that time, having an aspirational mindset and working through the challenges of the Chinese market was required.
Engagement with China is still critical for success - but such engagement needs to tilt to recognise what has changed.
There is a risk some organisations hold a dated view of China. Inertia plays a role. Part of that is natural, given the substantial investment that remains in, and will remain in, the country.
But China is changing. Exports alone can’t support ongoing growth, and China is transitioning to domestic demand. It's not a policy choice, or a bug in the system. It's a feature of economic development for a very large economy. That transition is already underway.
Recognition of that change needs to occur at the same pace. As foreign-direct investment looks more broadly than China, the opportunity for other economies, and businesses, across Asia is there for the taking.
Richard Yetsenga is Chief Economist at ANZ
This story is an edited version of comments made at Asia Briefing LIVE 2023 in October
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