The Bear's Lair

All hail the Chinese CHAMPS.

Posted by conorbjorn on 03/12/10
Tags: CHAMPS, China, Conor Griffin

The Chinese economic boom has been one of the world’s great stories for the past two decades. Fuelled by the emergence of coastal industrial powerhouses such as Shanghai and Guangzhou, China has succeeded in taking over 400 million people out of poverty. While some European companies have rsuccessfuly ridden the economic wave, a multitude of others have left with their tales between their legs.

So where to next? The Economist Inteligence Unit (EIU) believes that 2007 saw the beginning of a trend that will define China’s next generation – the rise of its inland cities. Beginning with the recession, when China’s industrial powerhouses in the east took a hit on exports, central China has outpaced their eastern neighbours. Recent EIU figures from the third quarter of 2010 show an astonishing growth in central China of 18.9%, compared with 15.6 %. in the East.

To identify the cities that investors and obervers need to keep an eye on, the EIU took a close look at China’s 287 prefecture-level cities and forecast their future populations and future growth. The results are China’s top 20 fastest-growing cities. Of these 6 in particular: Chongqing, Hefei, Anshan, Maanshan, Pingdingshan, Shenyang pose unique potential and make up the snappily entitled CHAMPS. A neat graphic compares the current and predicated disposable income, population growth and real GDP for these six cities against established western cities such as London, Rome and New York. The results speak for themselves.

The EIU also tracked China’s future megacities. For example, in 2020 Zhengzhou, capital of the Henan province will have a bigger population than Sweden Hong Kong or Israel. These cities will attract relatively more upper-income earners and their economies of scale will drive productivity in the services sector.

What opportunties will this growth bring? The EIU identifies some industries who stand to gain. Least surprising is the large scale markets that the CHAMPS are developing around products such as mobile phones, video cameras, cars and refrigerators. In addition however they are also becoming champions in sectors such as logistics, healthcare and education where larger coastal cities are struggling.

Ultimately the size and variety of the CHAMPS markets means that knowledge of local of environments is crucial to any European company looking to seize the opportunities that await. Thus while the economic picture in China still holds massive potential, it is more complex and nuanced than ever before.

English, EU-China
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EuroGoblin

Comment by EuroGoblin | 2010/12/07 at 20:11:10

Very interesting! I wonder, though, if China can sustain such high levels of growth over the next decade. Is the “easy” growth behind them? I wouldn’t be surprised if social tensions become more difficult to control as wage pressures, standards of living and inequality increase.
conorbjorn

Comment by conorbjorn | 2010/12/07 at 23:59:20

Hi EuroGoblin,

Thanks for your comment. Predicting China’s future growth is a mug’s game but a fun one! I largely agree with what you say.

Although the Chinese government deserves credit for policy decisions that have leveraged China’s strengths, there is definitely some truth to the claim that a large part of China’s economic growth is simply down to China catching up to where it should be and making up for past stagnation and regression.

I think the biggest challenges that China’s will face in the next decade will be economic and social issues like those you mentioned, although these are common in many developing and developed countries. This year’s strikes and resulting wage increases in China were a good example. China also faces continuing challenges such as property bubbles, urbanisation and rising inflation that will have observers worried. However I don’t see any challenge on the horizon that will will strongly impact on Chinese growth prospects in the next decade.

Rather I see overall chinese growth increasing relying on domestic consumption and increasingly moving to inland areas. The Chinese government will likely continue their focus on new industries and technologies and will continue to develop new hub areas specially designed to fuel FDI.

In the longer term I think the biggest challenge that China will face will be one of demography. It will not hit for while but in 20 years the impact of the one child policy will start to hit hard. The relaxing of this rule will not be enough as the majority of Chinese families likely do not want more than one child, a scenario that we have seen played out in Hong Kong and Taiwan.

A less clear argument is the one that India that often makes, namely that a society that is not open and pluralistic will struggle to fuel the kind of real innovation that will give an economy real edge in the future. Although China has several innovative companies, this a criticism that I think may well turn out to be true.

However it would be a brave man that bets against China adapting in some way. Observers have been predicting that China will stumble for many years – be it over democracy activists or its rising middle class – and time and time again the Chinese government has adapted. For a government that still relies on a essentially Stalinist political structure, the fact that they have adapted with such success is the key reason for China’s success in my opinion.

Thanks for reading.
Best,
Conor

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All hail the Chinese CHAMPS.

2 Responses to All hail the Chinese CHAMPS. »»