What’s in Store for China’s New Year?

Chinese year of horse

In China the Year of the Horse has now arrived, company business plans for 2014 are in place, the new government leadership’s high-level agenda is set for the next few years, and the first signs of spring are in the air already, at least in the southern half of the country.

Will the Year of the Horse be good for China?  What risks does it face over the next 12 months?

The Environment

Air pollution in December was amongst the worst ever, with 74 major cities failing to meet air quality standards on 21 days out of 31, and many experiencing multiple days of very serious PM2.5 pollution.  Food safety also continues to be a concern, with many young families citing these two issues as key reasons to consider emigration, to safeguard the health of their offspring.  9.4 million people – mostly middle class and between 35-55 – emigrated last year from China.

Regional and central Governments have various initiatives to combat pollution, but are struggling to find the right balance between environmental improvement and economic growth.  The signs are that social and political pressures are starting to push the scales a little away from the growth-at-all-costs model.

Corruption

Government officials will also be mulling over the continuing fight against corruption within the ranks of the party, government and large enterprises.  In 2013 182,000 officials were punished, an increase of 13% over 2012 and the signals from the country’s leaders are that the pressure will continue in 2014.  The traditional company- or government-funded end of year celebrations and the giving of gifts have been heavily curtailed this New Year.

The Economy

The economy has continued to prove a source of relatively good news, with growth coming in at slightly above the Government’s target rate of 7.5%.  Measures to make domestic demand a greater factor in economic growth, rather than reliance on exports and investment in infrastructure projects, have started to bear fruit and for the first time the service sector has taken a larger share of GDP (46%) than industry (44%).

However, enterprises in China need to deal with squeezed profit margins – partly caused by environmentally-led reform of pricing mechanisms for water, electricity and coal – overcapacity and price reductions due to competition.  Some will still therefore feel tempted to seek profits from investing in the property market which continues its relentless upwards trend.

Territorial Disputes

In recent years, China has become embroiled in a number of regional territorial issues, most seriously with Japan, but also with many of its south-east Asian neighbours.  Nationalism is never far below the surface and the dispute with Japan in particular has the capacity quickly to turn very nasty.

Currently, many commentators do not rank China’s ability at handling its external relations as highly as its internal management.  A miscalculation either at a high political or at a local operational level could set the world’s second- and third-largest economies on a military collision course, with the U.S. dragged into the dispute.  This is one of the “wild card” risks that could really disrupt China in 2014.

Avian Flu

Another such risk could be H7N9 or some further variant of the avian flu virus.  So far there have been around 140 cases reported in China, most apparently associated with exposure to live poultry or poultry markets.  The case fatality ratio is around 25%.  Although there is no evidence of sustained human-to-human transmission, the World Health Organisation does not rule out the possibility that further mutations could make such transmission possible.

What Else?

In addition, China is exposed to various natural catastrophe hazards, including earthquake, flooding and windstorms, all of which can wreak significant economic damage at a regional level and of course have devastating personal impact on the affected populations.

So are people looking forward to the New Year with trepidation?  On the whole, I think not.  The Chinese people have many reasons to continue to be optimistic about the future, despite the hurdles ahead.

  • The people are industrious and have a deep respect for traditional family values and the importance of education that gives this society an extremely stable base.
  • The government is well organized, responsive and better equipped than most to manage intelligently the multiple issues that face a large developing nation.
  • And the economic model seems to have an appropriate balance between central control and free market mechanisms to guide the economy through its current developmental stages.

GDP as Share of World GDP (PPP based)If this is not convincing enough, take a look at how the BRIC economies have developed in the 12 years since that acronym was coined.  It is China’s share of the world’s GDP that has grown most consistently and dramatically. (See chart at right.)

For the sake not just of China’s 1.3 billion population, but for the whole world, let us hope that this remarkable progress is maintained in 2014 and that the Chinese people enjoy a happy, prosperous and peaceful Year of the Horse.

About Tim Mathieson

Tim, Chief Operating Officer of Willis China, is a graduate in Chinese studies with more than 30 years’ experienc…
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