The Four Trends Driving China’s Future Growth

China is shifting from an export-driven, low cost producer economy, to a consumer one. They used to make Happy Meal toys. Now they want to build the machines that make the plastic that goes into the Happy Meal toys. According to U.S. Trust’s wealth management division’s chief market strategist, there are four trends that will drive China’s growth even if it grows less than the 7.5% it produced in the second quarter.

As China’s economy opens up and reforms, there will be hiccups along the way.  Joseph Quinlan, U.S. Trust’s strategist in New York, isn’t naive to China.  Like many bears, Quinlan sees annual real GDP growth falling to as low as 5% within 10 years. Notwithstanding this gradual downshift in the Chinese economy, “China will remain a critical pole of global growth,” he says. “As we continue to highlight, there are only three economies in the world that really matter: the United States, the European Union and China.” Forbes Magazine identifies the following four major trends, and the implications for investment:


Trend 1. The shift in investment: from “mining” to “dining” Owing to the massive build-out of China’s physical infrastructure over the past decade, the nation’s strategic M&A focus has long been directed toward the acquisition of natural resources. Think “mining” or strategic investments in Canada, Australia, Africa and South America….Beginning in 2013, however, China’s strategic M&A focus shifted. Read More Trend 2. The shift in capital flows: two-way instead of one-way For decades, inbound investment flows were strongly encouraged, while outbound investment flows were highly restricted. China preferred that its scarce capital stay at home to promote growth, along with strong capital inflows. China is awash in excess capital. China’s international reserves are presently in excess of $3 trillion, an abundance of wealth that China’s underdeveloped financial system cannot absorb. Hence the need to allow greater capital outflows. Read More Trend 3. The shift in consumer leverage: more, not less The rising use of credit, notably among younger Chinese consumers, will be critical in driving personal consumption expenditures in China in the future. Buying a car in China is still primarily a cash transaction, but things are changing. Read More Trend 4. The shift in shopping: online shopping (ecommerce) explodes Total retail sales in China in the first half of the year rose 12.1% from a year ago. That’s not terribly robust by Chinese standards, but the more telling story is this: Online retail sales over the same period soared 48.3%. Read More Via:Forbes

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