Is China slowing down?

Is China slowing down?

This is the big question on everyone’s mind in China this week as we hurtle from city to city by bullet train and marvel at the amazing transformation of a country which was over 90% rural only 30 years ago.  There is certainly no evidence of China’s slowing on the ground, in Beijing and Nanjing at any rate, as the locals strive to defy the gravity caused by the vanishing western consumer which has required the Government to speed up the transformation of their domestic economy to ensure more sustainable and stable growth for the future.

Yesterday I spent a very pleasant afternoon with my old friend, Xisu Wang next to a beautiful lake adjacent to the Forbidden City (see photo above) who can always be relied on to speak good sense when it comes to China’s economic growth path and the role of the Government. Xisu reminded me, as he often does, that there are no surprises in China because everything is planned in advance. The current Five Year Plan (2011 – 2015) predicts a slowing of China’s growth to a more sustainable 7% per annum which is more than sufficient to maintain the progress that is needed to maintain social stability (more jobs, higher wages and increasing wealth is the key to that) and allow China to transition to an economy which is driven more by domestic consumption (propelled by urbanisation,  innovation and aspiration) rather than exports and the availability of low cost labour.

As we drove back to my hotel, we spoke to the Beijing taxi driver about his life. Xisu says he always does this to gauge the mood of the local people who have experienced real poverty in their lives and are a reliable measure of the local mood of ordinary people.  The taxi driver was indeed very happy with his life. He owns and rents out his own plot of arable land (from which he generates a nice steady income and enough food to feed his family) his wife is working, his children were doing well at university and with his income from driving taxis he was happy and content with his lot. Xisu says this is very common amongst the poorer classes whose tastes are simple, who are grateful for everything that China’s economy has given them, and who simply want a better life for their children. Xisu felt this was in sharp contrast to more middle class urban dwellers who he says are always complaining (about trivia in his view!)

Yes, China is slowing. Its part of the plan. Its actually a good thing. And it will deliver higher quality growth in the long run. This may not please Australian miners or European politicians, but it will hopefully avoid the “boom and bust” cycles of the past and it will deliver good returns for investors, businesses and Governments who take the time and trouble to build local relationships and understand the local dynamics.

Many people said China’s economy would hit the wall a long time ago. They’re still saying it today. Will they be saying it in another 10 years?