Last night the Young Icebreakers Committee were treated to a fascinating talk by former Minister Counsellor Zhou Xiaoming on the “New Normal”. We were hosted by our old friends the Bank of China and had a chance to visit their exhibition of 85 years of the Bank of China in London.
Minister Counsellor Zhou gave us good reasons why China was moving to a new normal of 6-7pc average growth over the next 10 years compared to 10pc growth in the previous 10 years. He felt the rate of growth would stay over 7pc for the current three years. But the trend is towards 6-7pc which is still a very fast expansion compared to all other nations.
He said that the cumulative effect of 7pc growth would produce a new UK economy every 3 years alone.
He said that too much credit had been issued to achieve this previous level of growth and too much state and local funds were being used to sustain growth with investment. This state and regional investment in infrastructure would continue at a lower level, because China had to build the new transport and communications infrastructure across Central and Western China, and the demands for infrastructure to support another 3-400 million moving into towns and cities. The demographic trend towards 200 million over 60 by 2020 also created costs which needed managing.
But a debt to gdp ratio of 250pc was too high and had to be eased down. This would mean that investment as a pc of GDP would ease back.
But the urbanisation would gradually lead to the role of consumer consumption as a percentage of GDP rising. But it would not be based upon debt financed consumer spending, rather a drop in savings, which are, traditionally, on the high side.
Industry would need to improve and replace speed of expansion by quality, efficiency and innovation. Again this would slow the rate of growth.
Exports had placed a key role in the previous high rate of growth, and represented too high a percentage of GDP, and with international markets being sluggish, this would also help reduce growth rates towards more normal levels.
The period of double digit growth was behind China and now sustainability and innovation would replace fast growth targets.
He explained that in the past 1pc growth produced 1 million jobs, and that China had an average of 10 million new jobs to find each year. Whereas in the past 30 years this had been found mainly in manufacturing, this was now switching quickly to the service sector. In this sector 1pc growth produced 1.5million jobs and so a lower growth rate was safe to avoid unemployment.
He confirmed that the inflation ceiling would be 3pc and this was again manageable with the lower growth rate. It is currently around the 2pc level.
He felt that services , especially financial services for the UK, was a priority area of opportunity for new businesses. This would include the medical sector and old peoples homes would offer good investment opportunities for the British 200 million over 60 by 2020.
In the field of advanced engineering he felt the British had significant creativity but lacked the market to commercialise their innovations, but that linking with Chinese partners the China market could provide the basis for development. he gave several examples where this was already occurring.
He also drew attention to a third area of significant opportunity – the Silk Roads and 21st Century Ocean Route would provide new links and market openings across Asia to Europe through Eurasia, and South through South East Asia into South Asia and through to the Middle East and Africa. China alone would invest $160bn in these developments which would take time, and patience would be needed.
The train and road links from China to Central and Eastern Europe would provide growth stimulus all along the path.
The meeting was left with the impression that this “new normal” was based upon serious research over many years and was well thought through.
Minister Counsellor Zhou has moved to Geneva where he continues to use his skills in the multi lateral activities based around the United Nations there.
A good friend of the 48 Group, we were delighted to have him join us.
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