16 February 2019
Since last year, the consumer sector has surpassed the contribution of investment in GDP growth. Photo: CNSA
Since last year, the consumer sector has surpassed the contribution of investment in GDP growth. Photo: CNSA

Consumer, new economy sectors to lead China’s transformation

China’s astonishing high growth is history. The second-largest economy will post its slowest GDP expansion in a decade at 6.9 percent this year.

We expect it to slow further to 5.5 to 6 percent by 2020. 

The industries that contributed a lot to the country’s rapid growth have lost their momentum amid the global downtrend, especially of the commodities market. 

The truth is that China’s economy is in a transition. Since 2014, the consumer sector has surpassed the contribution of investment in GDP growth.

The shift toward a consumption-driven economy will lead to a rise in the leverage ratio and a slowdown in the GDP in 2016.

It’s a natural thing: the bigger the size of the economy, the harder it is to maintain a high growth rate.

But most Asian economies are not ready for China’s new normal. Whether investors and policy makers succeed in the economy’s transformation depends on whether they will give up old habits and embrace China’s new moves.

Under the new economic order, innovative manufacturing and services, among other emerging industries, will see a golden age.

Increasing household income and policy incentives will boost the new economy sectors to expand by 20 to 50 percent in 2016, much higher than the projected Asia ex-Japan benchmark equity index growth of 8 percent.

The prosperous Asian internet industry will have huge opportunities. The industry is at a turning point: internet users in the region now account for more than half of world’s total, creating opportunities to monetize their number.

E-commerce is leading developments in the internet sector. Value-added businesses, including digital advertising, payment and games, will see strong growth in the historical transformation.

In 2016 and the succeeding years, the Asian internet sector will maintain an annual growth of 20 to 25 percent.

Besides the internet industry, healthcare, insurance and tourism will also have a bright outlook.

It must be noted that the aging problem in Asia will lead to large increase in public health expenditures.

For instance, the Chinese government plans to have a 9 trillion yuan (US$1.39 trillion) healthcare industry by 2020, representing a sevenfold growth from the 2011 level.

Meanwhile, the number of Chinese traveling to members of the Association of Southeast Asian Nations for medical services is likely to soar in the coming decade.

China will also institute reforms in the medical/pharmaceutical sector, including rationalizing drug prices and improving manufacturing standards. All this will bring new investment opportunities.

Investors should brace for a volatile market in 2016. But with the big reforms in China, Asian internet and consumer industries will be the biggest winners.

This article appeared in the Hong Kong Economic Journal on Dec. 18.

Translation by Myssie You

[Chinese version中文版]

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