China today is incomparable with where it was two decades ago – and its key opportunities for the future are clear.
I was in Shanghai recently and the city keeps getting better. Particularly noticeable to me was the fleet of cars were very, very new. In fact, I cannot think of a city which eclipses the cars in Shanghai – and among them were many electric vehicles.
That shift, and others happening as part of the transition to net-zero carbon, are at the heart of China’s new economic opportunity. The prominence of the climate transition in discussions of China’s strengths, and its future, is large. Climate is a more prominent part of the discussion than anywhere else I have been recently.
But no economy can grow quickly forever. China’s trend rate of growth was always likely to slow. In conversations I’ve had on this visit, in contrast to pre-pandemic, China’s structural challenges are generally acknowledged. The property sector and trade and geopolitics are the two mentioned in every discussion.
I haven’t, however felt the negativity I might have expected. While the challenges were acknowledged with candour, three mitigants were also often offered: China is not Japan, China is a large economy, and China has a very competitive export sector.
All of these are true, to some extent. China isn’t Japan, but it does have challenges with leverage and demographics. And China is a large economy with a world-beating export sector; but as a large economy it can’t export its way to prosperity.
The switch to domestic demand must occur much earlier in its development than it did for, say, the Republic of Korea or Singapore.
Even China’s urbanisation, which often goes together with economic development, has a different facet now the population is shrinking.
Recipient cities of the internal migration can still benefit, but de-population will increasingly be the result at the origin of the migrant journey. This has flow-on implications for local government revenue and financial stability in local areas.
China’s opportunity is there – but it is changing.
Richard Yetsenga is Chief Economist at ANZ
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