China 2020: Where is China headed with its “New Normal”?

In his speech at the World Economic Forum’s annual meeting in Davos last month, Chinese Prime Minister Li Keqiang emphasized again that the world’s second-largest economy will not suffer a hard landing and that China is ready to endure reduced GDP growth during its transition to a more balanced expansion model fueled by domestic consumption.

Of course, such predictions are always easier said than done.

Anyone who regularly follows financial news or the global economy will be familiar with the term “New Normal,” which refers to China’s new economic model of slower but healthier growth. As industrial production and trade expansion slow down, China is now seeking additional growth opportunities in domestic demand. So, where exactly is China going in the next few years with its “New Normal” before the country’s next Five-Year Plan concludes in 2020?

Economic Slowdown at an Average Growth Rate of 6.2% during 2015-2020

China’s outlook is definitely not rosy, as it suffers from mounting local government debts and rampant shadow banking activity. Although the country’s top policymakers always appear determined to correct the structural imbalance – even at the expense of a somewhat stagnant economy – how China plans to boost consumer confidence and effectively deleverage without causing further damage to the already dwindling property investment market remains a mystery.

ConsumingChina2

FSG estimates that China’s economy will grow at an average rate of 6.2% during 2015-2020. While the country is embracing its “New Normal,” what will this mean for multinationals in the Chinese market?

Enormous Spending Potential Fueled by Urbanization

During China’s unprecedented economic boom in the past three decades, many multinationals poured into the market to tap into its enormous business opportunities. Home to 20% of the world’s population, the country still boasts vast untapped potential. As urbanization takes its course, the central government plans to move even more people into cities to achieve its ambitious target of 60% urban population by 2020, with the rise of a sizable middle class promising huge spending potential.

ConsumingChina1

As the country is gradually transformed from a cheap source to buy from to a prosperous market to sell to, multinationals must adjust their go-to-market strategies to prepare for an evolving market, especially with the country’s economic growth managed by the central government.

Preparing Multinational Corporations for China’s “New Normal” through 2020

This blog post is the introduction to a six-part FSG insight series on China’s economic outlook in the next five to six years and its implications for multinationals’ mid-term strategies. During the next few weeks, I will be elaborating on some of the key opportunities and risks that multinationals will need to monitor as they develop their strategic positions in China through 2020. Next week’s update: “Global China: Further Market Liberalization and the Internationalization of Renminbi.” Stay tuned.


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