{"id":789,"date":"2016-05-12T00:00:00","date_gmt":"2016-05-12T00:00:00","guid":{"rendered":"https:\/\/www.motionpoint.com\/?post_type=blog&#038;p=789"},"modified":"2016-05-12T00:00:00","modified_gmt":"2016-05-12T00:00:00","slug":"china-the-sky-isnt-falling","status":"publish","type":"blog","link":"https:\/\/www.motionpoint.com\/blog\/china-the-sky-isnt-falling\/","title":{"rendered":"China: The Sky Isn\u2019t Falling"},"template":"","blog_categories":[5,9],"resource_categories":[],"targeted_localized_audience":[],"document_categories":[],"class_list":["post-789","blog","type-blog","status-publish","hentry","blog_categories-international-business-strategies","blog_categories-marketing-strategies"],"acf":{"blog_short_description":"China\u2019s economic growth is slowing. Analysts are glooming and dooming. But our expert has a different perspective.","news_inline_styles":"","blog_video_id":"","article_body":"<p>China\u2019s economy isn\u2019t showing the astonishing year-over-year growth of years past. Its country\u2019s industrial sector is particularly feeling the pinch. The daily business press seems to alternate between characterizing the situation as dire, and <i>really dire<\/i>.<\/p>\n<p>  Our analysis suggests things aren\u2019t as bad as they sound\u2014especially for Western companies keen to engage the growing Chinese middle class through online channels. (More on this in a moment.) However, there\u2019s no disputing that after more than 40 years of stratospheric growth, China\u2019s economy is no longer supercharged.<\/p>\n<p>  To combat the slump\u2014and to help keep tens of millions of Chinese industrial workers employed\u2014the government is making moves to improve growth. On Monday, it recommended incentives for Chinese companies to <a href=\"http:\/\/www.wsj.com\/articles\/china-introduces-proposals-to-boost-exports-1462800636\" target=\"_blank\">boost exports<\/a>. These policy guidelines, including greater bank lending and improved insurance rates for exporters, are intended to reclaim lost ground when exports dropped last month.<\/p>\n<p>  A relatively constricted global economy (compared to the past four decades of wild export growth) isn\u2019t helping. Neither is increased competition from other Asian markets.<\/p>\n<h2>Things Seem Tough All Over<\/h2>\n<p>  Indeed, the message from the government\u2019s State Council seemed dire on Monday: \u201cPresently, the foreign trade situation is complicated and severe, elements of uncertainty and instability are increasing, and downstream pressures are continuously growing,\u201d it said.<\/p>\n<p>  More bad news: a recent <a href=\"http:\/\/www.wsj.com\/articles\/chinese-exports-surge-amid-overcapacity-at-home-1462746980\" target=\"_blank\"><i>Wall Street Journal <\/i>investigation<\/a> revealed that China continues to produce steel, aluminum and other basic industrial goods in an effort to keep unprofitable factories in operation\u2014though this has led to a glut of ultra-low-priced materials on the global market. This is severely undercutting competitors, and creating job losses in other markets, including the U.S.<\/p>\n<p>  <a href=\"http:\/\/www.nytimes.com\/2016\/05\/11\/opinion\/chinas-middle-class-anxieties.html\" target=\"_blank\">A recent op-ed<\/a> in <i>The New York Times <\/i>by Chinese author Murong Xuecun suggests that China\u2019s middle class is now growing anxious. Local social media networks reflect the fears: <i>The 10 Anxieties of the Middle Class,<\/i> one topic thread reads. <i>Will the Middle Class Become the New Poor?<\/i>, reads another. <\/p>\n<p>  \u201cEconomic insecurity adds to the standing list of worries about daily life that includes pollution and tainted food and water,\u201d Xuecun writes. \u201c\u2026Discussions about how to get money out of the country, or converted into a foreign currency, are common.\u201d<\/p>\n<h2>A Different Perspective<\/h2>\n<\/p>\n<p>  The business press is within its right to breathlessly cover the economic slump. But it\u2019s also fair to remind folks that the Chinese economy still grew at a breakneck pace of 6.9% <a href=\"http:\/\/www.tradingeconomics.com\/china\/gdp-growth-annual\" target=\"_blank\">last year<\/a>. (In contrast, the U.S. economy grew by 2%, comparing Q1 2015 to Q1 2016. Germany\u2019s economy grew by 1.7%.) As predicted by many analysts, much of this growth was fueled by consumer spending. Urban household incomes rose by <a href=\"http:\/\/www.forbes.com\/sites\/helenwang\/2016\/01\/19\/chinas-middle-class-has-become-a-major-pillar-of-its-economy\/#15b14439619e\" target=\"_blank\">nearly 10%<\/a> in China last year. The country\u2019s long-term pivot from an industrial-based economy to a higher-value, services-based economy is bearing fruit: the country added 13 million jobs last year, most in the services sector. This exceeded the government\u2019s target of 10 million, <i>Forbes <\/i><a href=\"http:\/\/www.forbes.com\/sites\/helenwang\/2016\/01\/19\/chinas-middle-class-has-become-a-major-pillar-of-its-economy\/#15b14439619e\" target=\"_blank\">recently reported<\/a>.<\/p>\n<p>  This job growth wasn\u2019t isolated to 2015. The service sector expanded by nearly 8% in this year\u2019s first quarter.<\/p>\n<p>  We spoke with Eric Watson, a Global Online Strategist for our Global Growth team, on this topic. Does China remain an ideal market for Western companies to engage and sell to, particularly online? <\/p>\n<p>  \u201cAbsolutely, particularly when you examine the long-term prospects of the Chinese economy,\u201d Eric explains. \u201cThere are several bright indicators, even in the short term.\u201d<\/p>\n<h2>Growth, Growth, Everywhere<\/h2>\n<p>  For one, consumption is up, Eric says. Chinese retail powerhouse Alibaba will soon surpass Walmart as the world\u2019s largest retailer, thanks to the incredible growth of its Tmall online marketplace and other e-commerce platforms. Chinese consumers spent <a href=\"http:\/\/www.nytimes.com\/2016\/05\/06\/business\/international\/alibaba-q4-earnings.html\" target=\"_blank\">nearly $500 billion<\/a> on Alibaba sites and services last year. Its sales rose by nearly 40% in Q4 2015; its profits grew more than 80%.<\/p>\n<p>  Much of this growth is \u201cnewly increased consumption,\u201d <i>China Daily <\/i>reported <a href=\"http:\/\/europe.chinadaily.com.cn\/business\/2016-03\/22\/content_24003129.htm\" target=\"_blank\">in March<\/a>. \u201cOnline shopping has been an important engine to promote consumption,\u201d an analyst told the newspaper, \u201cwhich meets the nation\u2019s strategy of promoting domestic demand.\u201d<\/p>\n<p>  Beyond Alibaba, the market\u2019s overall retail sales increased by 10.6% in March, slightly above expectations. That growth increased over the 10.2% rate seen in January and February.<\/p>\n<p>  \u201cThese numbers are impressive, but their significance is greatly magnified when applied to the size of China\u2019s population,\u201d Eric says. \u201cRemember, we\u2019ve only seen a sliver of China\u2019s consumption potential so far. In addition to the quickening increase in retail sales, you can see this potential in the country\u2019s Internet penetration\u2014particularly, in how many people <i>aren\u2019t yet online.<\/i>\u201d<\/p>\n<p>  Currently, only about half of China\u2019s 1.3 billion citizens has Internet access, Eric says. (Developed East Asian countries of Japan and South Korea have penetration rates of 91.1% and 85.7%, respectively.) <\/p>\n<p>  Even with an Internet penetration rate of around 50%, this still represents over one-fifth of the entire world\u2019s Internet users. And <a href=\"http:\/\/www.statista.com\/statistics\/369560\/china-internet-user-penetration-projection\/\" target=\"_blank\">it\u2019s rising<\/a>: Internet penetration in China has grown more than 11% since 2013.<\/p>\n<h2>The Sky Isn\u2019t Falling<\/h2>\n<p>  Back to China\u2019s middle class for a moment. It\u2019s growing, but is still in its infancy. Only 11% of the population is classified as middle class, <a href=\"http:\/\/www.goldmansachs.com\/our-thinking\/macroeconomic-insights\/growth-of-china\/chinese-consumer\/index.html?cid=PS_01_50_07_00_01_15_01#mkwid=\" target=\"_blank\">according to Goldman Sachs<\/a>. Even so, Chinese households have aggregate net cash reserves of over $4.6 trillion, <i>Forbes <\/i><a href=\"http:\/\/www.forbes.com\/sites\/jlim\/2016\/05\/05\/alibaba-fy2016-revenue-jumps-33-ebitda-up-28\/#5294905f61a9\" target=\"_blank\">recently reported<\/a>. The anxieties middle-class consumers are expressing, as seen in the <i>New York Times<\/i> story mentioned earlier, are actually quite natural and expected, Eric says.<\/p>\n<p>  \u201cThese concerns are absolutely valid,\u201d he says, \u201cbut they\u2019re also exactly the kinds of concerns that you should expect from a radically new population in the country: people who are experiencing an unprecedented level of comfort and consumption for the first time in their lives.\u201d<\/p>\n<p>  Taking the long view, it seems almost obvious that the desires of a new Chinese middle class\u2014one that lives almost exclusively in urban environments, demands to purchase international items, and travels abroad with greater frequency\u2014would clash with a political and economic system that\u2019s still adapting to satisfy those appetites. If these citizens fear they\u2019ll soon feel the squeeze of an economic slump, they\u2019ll naturally pipe up about it. <\/p>\n<p>  \u201cThese claims of instability are likely unfounded mostly because the existing political and economic system is responsible for much of the affluence and growth,\u201d Eric explains. Reports suggest almost half of China\u2019s middle class are employed by government organizations or state-owned companies.<\/p>\n<p>  Indeed, as Xuecun observed in his <i>New York Times <\/i>piece, \u201cThey get that the cause of their various discontents is the one-party system, but they also appreciate that the system underwrites their comfortable lives.\u201d<\/p>\n<p>  The rapid growth of China\u2019s middle class\u2014coupled with the economy\u2019s decades-long shift to a consumption- and service-oriented economy necessary to fuel that growth\u2014will undoubtedly <a href=\"http:\/\/thepolicywire.com\/all-that-glitters-is-not-gold\/\" target=\"_blank\">lead to stumbles<\/a> and continuing anxieties. Nothing\u2019s perfect, Eric says.<\/p>\n<p>  \u201cHowever, companies considering entering the Chinese market, especially online, need only look at the growth in personal consumption, incomes and changing consumer tastes to realize that a hungry market exists,\u201d he says. \u201cBased on the performance of retailers like Alibaba and the ever-growing Internet penetration rate, it\u2019s clear this market\u2019s consumption has only just awakened.\u201d<\/p>\n<\/p>\n<p>  <b>The takeaway:<\/b> China\u2019s economy may not be growing as aggressively as in decades past, a clear result of its pivot from an industrial economy to a services economy. But a growing services sector is driving job creation and consumption. Despite the choppy waters, China remains a smart immediate and long-term bet for international expansion\u2014particularly online.<\/p>\n","article_body_code":"","news_image":{"ID":7894,"id":7894,"title":"Hero_China-the-Sky-isnt-Falling-100.jpg","filename":"Hero_China-the-Sky-isnt-Falling-100.jpg","filesize":66019,"url":"https:\/\/www.motionpoint.com\/wp-content\/uploads\/Hero_China-the-Sky-isnt-Falling-100.jpg","link":"https:\/\/www.motionpoint.com\/blog\/china-the-sky-isnt-falling\/hero_china-the-sky-isnt-falling-100\/","alt":"","author":"2","description":"    \t","caption":"","name":"hero_china-the-sky-isnt-falling-100","status":"inherit","uploaded_to":789,"date":"2016-05-12 00:00:00","modified":"2016-05-12 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