High Street Partners' Blog

China in 2012: What’s next for the emerging economy

It’s nearly impossible to open a newspaper or flip on a world news station without coming across a story covering China’s economic growth within the last few years. With consistent annual growth rates of around 10 percent for the last decade and the title of country that is the largest global exporter of goods, the nation is an industrial powerhouse that is understandably the aim of many companies considering international expansion.

Watching China’s meteoric rise throughout the last few decades has been fascinating, but recent news about slowing growth begs the question: What’s next for this emerging economy? Is growth sustainable? What factors will come into play and what challenges will develop for those looking to do business in this opportunity rich nation?

Global interconnectedness and the impact of a linked world economy

Economies traditionally viewed as cornerstones for worldwide economic health are faltering. The Eurozone is teetering on the brink of crisis, while the United States hopes to avert a double-dip recession. But China can no longer count on remaining insulated from these issues. Our integrated world economy does not allow for any one country to function as an island. Economic trouble, whether in a G8 country or in a tiny, far-flung nation, causes a ripple effect worldwide. 

In China’s case, the impact of a world economy in turmoil could be particularly devastating. As the globe’s single largest exporter of goods, shrinking buying power in places like the U.S. and Europe reduces consumer demand, meaning a reduced need for the nation’s low-cost products. China has a vested interest in the positive growth of economies worldwide

Dealing with internal deficiencies

While China’s push in recent years has been to boost economic strength, rapid growth is beginning to catch up with its inadequate infrastructure and internal state of affairs. Lax environmental regulations, sharp income inequality and an overloaded national pension system are just some of the issues that this still emerging nation needs to tackle in order to maintain consistent growth.

The Chinese government is working to address these issues through reform. While its 12th five-year plan, released March 2011, is heavily focused on sustaining the country’s extraordinary success (targeting an annual GDP of 7 percent), the plan also outlines several objectives around improving infrastructure and improving quality of life for the average Chinese citizen. Some highlights include: developing the western regions of the country, investing in priority industries (clean energy, biotech, high-end manufacturing and more), reducing pollution, increasing life expectancy, developing affordable housing units, and boosting the service sector.

A challenging environment with huge opportunities

Though China is working to improve its infrastructure, it’s a market that is still notoriously difficult for foreign companies to break into. This is not likely to change; in fact, it may become more difficult as the country works to cultivate more sophisticated, native industries, rather than looking to overseas businesses to take the lead.

While no one has a crystal ball that can tell us what will happen next, the writing on the wall is pretty clear: China is an arriving economic superpower, presenting huge potential returns for businesses looking at overseas expansion. A potential investor need only look at recent economic numbers and predictions for growth to know that expansion to China, though challenging, can be a worthwhile investment.  Such expansion however should be undertaken with diligent planning and much forethought.

Interested in learning more? Check out HSP’s recent overview on China to get more insight on things to know when considering expanding your business there.