Chinese economy slowly moving from 'made in China' to 'made for China’

In the wake of a slowdown in the Chinese economy which is no longer driven primarily by huge investment in manufacturing to produce cheap goods, Professor Kamel Mellahi of Warwick Business School gives an insight on the way forward for the Chinese economy.

Professor Kamel Mellahi said: "Against the backdrop of disappointing consumer spending, intensifying deflationary pressures, tepid export growth, and a stock market that looks out of control these figures were expected for 2015. It’s not the stellar growth of the past decades, but it’s still a decent growth given the current local and global economic conditions.

"China is slowly moving from 'Made in China' to 'Made for China'. The economy is no longer driven primarily by huge investment in manufacturing to produce cheap goods destined primarily for export markets. It is now moving from an export-led, low-cost producer economy, towards one driven chiefly by domestic consumption and underpinned by services, innovation and entrepreneurship.

"Sustaining a decent growth during a period of major structural recalibration is not something that is easily sniffed at. China’s economy is undergoing a major restructuring. The slowdown of the Chinese economy is an expected side effect of the current recalibration of the economy.

"The 13th five-year plan, which will be made public in March, is going to provide a roadmap for the future of the Chinese economy. Its major objective is to avoid the middle-income trap and transform the country from a low to a high income economy by 2020. The focus is going to be on sustainable growth obtained through innovation, use of technology, quality and efficiency.

"It must be said that the government has pulled out all the stops to prop up local consumption and avert a hard landing. During the last year, the People's Bank of China has cut the benchmark lending rates numerous times, lowered the level of reserves banks are required to hold to spur lending to stimulate growth, and fast-tracked approvals for new investment projects. As a result, the new engines of China’s economy are slowly picking up steam. In particular, the service sector continues to rise, albeit slowly.

 

"Plus, despite the slowdown of the economy, wage growth is rising at around 10%, unemployment is remaining relatively low at around 6%, and more importantly consumption expenditures are rising, albeit, slower than anticipated.

"The government has set a very ambitious growth target for the next couple of years. It remains to be seen whether such growth level can be sustained over the long run. The target is very challenging, especially in the context of promised supply side reforms."