China economy transition

The urbanization is another trap. Most countries like Brazil or Argentina lost in that middle income trap. After the urbanization ratio above 80, some countries, like Japan, grow fast by innovation and structure optimization, others lost quickly because of the lacking innovative.

Yes, China is on the road of transiton.
We have our own logistics and economy center shanghai.Now it is world No.1.
And many companies have invested in the foreign countries.
And Alibaba has been a very large company in the stock market.
Here I want to discuss the issue of RMB.
I remember the exchange rate of USD and RMB was about 10:1. 10 years ago.
Now it is abou 6:1. What does this mean? I think it could tell us sth about the development of our economy. And now RMB is No.4 international currency. And in the near future, I am sure the RMB will stronger. And the economy of China will be better too.

As a late comer to such a big topic and inspiring inputs, I have nodded   so many times with previous posts by classmates.

The transition is underway, and it could be a long journey for numbers of generations. As we are not really in the policy makers’ shoes and the information we can access may not be so accurate and comprehensive, we may not be able to make effective solutions just as Stefanie suggested.

One of the questions I can think of is that within the big picture filled with challenges and opportunities, how can we find better positions for “us” or “me”? And what can we do for now?

There’s no doubt we should get well prepared for the incoming change, be more proactive instead of reactive acceptance. We can practice and apply the creative thinking skills (if not too late) more often during work time to drive some out-of-the-box solutions and into everyday life, and brainstorm ideas with each other, in this class, we already have a much higher-possibility breeding ground to create our own business.

The government should do something to protect the intellectual property. This is the very fundamental and first step to boost innovation economy.

Nobody knows whether the Chinese economy growth is sustainable or not, we can’t predict it. Nobody knows what Chinese government will do for the economy reform in the future, we can’t control it. Nobody knows when the transitioning from a low cost manufacturing mecca to an innovation-based high margin economy could realize, we can’t know it. But the truth is whatever we do something or not, the changing is happening. What we can do is that we should think about what we can do by ourselves to contribute to the changing deeply. I think that’s one of the reasons we came to this MBA program.

Thanks to all the great ideas from my classmates have shared above. This is really a very hot topic these years. I can still remember the days last year; Shanghai experienced its worst pollution with levels of PM2.5 hitting 600. We don’t want our Children can only see black sky and water in the future, it shall be back to the nature color and the transition would allow us to make it and we have already started the process.

Challenge side
We can see some Global companies start to move their factories to other low cost countries like India & Vietnam. This would cause big reduction of employment opportunities, more and more people are back to village from big cities
China economic growing speed was slowing down and GDP grew 7.3 in 3rd quarter, it keep year-on-year as weak overseas demand weighed on output and investment
Opportunities side:
As the world's second largest economy, if the transition does not goes well, it does not only impact China economic but also the global economic. So it can’t be suddenly broke but a smoothly transition process to it. It’s the time for China to transit to more healthy and long term development ecomic structure. Our industry will be more diversity and sustainable. More and more companies developed under new industrial structure, like service, information technology, Insurance, agricultural industry & many others, Companies like Alibaba, Tencent & Baidu are development to top tiers of global entities.
From One side the employment opportunities are reduced, and people have to go back to village or small cities, some factories also move to low cost regions, it’s better to help China to solve the un-balance development problem of cities and village, also inequalities between China western and eastern, it’s good for long term development

Above all, I am more positive with the transition. And it is only preliminary views, and I am looking forward to hearing more from all my great class mates and others.

As I am from apperal industry, most manufacturers in China is suffering high labor cost and most overseas brand has turned to India, Vietnam and other comparatively cheaper places. This is the trend and China is now becoming a service-based society.

Intellectual properties from my point of view is the most important to settle down during china economy transition which seem to be the core drive to push creativity and innovation ahead, where the high profit margin must come. Otherwise China will be still trapped in manufacturing base with no value-add service and products and sluggish growth for profit and sustain the business in the future.

Challenge: immature technology, severe competition, policy issue, different culture, increasing cost
Opportunity: bigger market

Looks like we are so productive in ideas generation, and your suggestions are quite inspiring.

Besides, I want to share a latest piece of news from my broker:

"Rumor said that President Xi will hold a top level economic working team meeting tomorrow afternoon, and will decide a Chinese version of The Marshall Plan, the key point is to invest RMB 4tr to overseas. The general idea is to require Chinese companies to guarantee foreign countries to invest in ports, highways and railways, which will use domestic over-capacity and Chinese companies will do the operation. China domestic port and highway companies are expected to become the main investors for this round overseas investment, and domestic construction companies will be the main contractors."

How do you think of it?

mirror zhao wrote:Thanks to all the great ideas from my classmates have shared above.  This is really a very hot topic these years.  I can still remember the days last year; Shanghai experienced its worst pollution with levels of PM2.5 hitting 600.  We don’t want our Children can only see black sky and water in the future, it shall be back to the nature color and the transition would allow us to make it and we have already started the process.  

Challenge side
We can see some Global companies start to move their factories to other low cost countries like India & Vietnam.  This would cause big reduction of employment opportunities, more and more people are back to village from big cities
China economic growing speed was slowing down and GDP grew 7.3 in 3rd quarter, it keep year-on-year as weak overseas demand weighed on output and investment
Opportunities side:
As the world's second largest economy, if the transition does not goes well, it does not only impact China economic but also the global economic.  So it can’t be suddenly broke but a smoothly transition process to it.  It’s the time for China to transit to more healthy and long term development ecomic structure.  Our industry will be more diversity and sustainable.  More and more companies developed under new industrial structure, like service, information technology, Insurance, agricultural industry & many others, Companies like Alibaba, Tencent & Baidu are development to top tiers of global entities.
From One side the employment opportunities are reduced, and people have to go back to village or small cities, some factories also move to low cost regions, it’s better to help China to solve the un-balance development problem of cities and village, also inequalities between China western and eastern, it’s good for long term development

Above all, I am more positive with the transition.  And it is only preliminary views, and I am looking forward to hearing more from all my great class mates and others.

I partly aggree with you. The different view between yours and mine is the premise.

As you said that "The transition would cause big reduction of employment opportunities.". Under my understanding, the transition would not be that fast, actually the NEW economy is mostly at first-tier cites like Shanghai, Beijing, Shenzhen, etc. As for the rest cites and areas, they are still developping, needing the mass bulk manufacturing to support the New economy. So I hold that the NEW economy will not impact employment opportunities, but will to a certain extent increase the oppotunities.

SONG RENJIE-Steven wrote:Intellectual properties from my point of view is the most important to settle down during china economy transition which seem to be the core drive to push creativity and innovation ahead, where the high profit margin must come. Otherwise China will be still trapped in manufacturing base with no value-add service and products and  sluggish growth for profit and sustain the business in the future.

I totally agree with you. Intellectual properties are the most key factor for the development of the NEW economy. The government must know the human nature. Companies are run by people, and people are part of nature. If you don understand the nature, you will not know what it is and what its law. We can obviously look back to the history that not unerstanding of the law of nature, we died hardest in all aspects.

The creativeness and innovation also come from people. If we don understand the human nature, the nature will kill us as ever. Here I mean we will no more have creativeness and innovation, wich is equal to kill the company, especially in such a rapid pace of the world.

You have to keep running fast in such a slow kind of world, said red queen.

PENG, YAJUAN wrote:Looks like we are so productive in ideas generation, and your suggestions are quite inspiring.

Besides, I want to share a latest piece of news from my broker:

"Rumor said that President Xi will hold a top level economic working team meeting tomorrow afternoon, and will decide a Chinese version of The Marshall Plan, the key point is to invest RMB 4tr to overseas. The general idea is to require Chinese companies to guarantee foreign countries to invest in ports, highways and railways, which will use domestic over-capacity and Chinese companies will do the operation. China domestic port and highway companies are expected to become the main investors for this round overseas investment, and domestic construction companies will be the main contractors."

How do you think of it?

Your cites remind me of what Mr. Ken Wilcox, the president of silicon valley bank, said in the Fudan Global Leader Forum, he highlighted four points between the relationship of U.S and China. One of them is "China does need set low requirements for foreign companies to enter China, because they will help you."

Ture, China needs good practices from foreign countries and needs to learn western methodology. China's over 5000 years culture and basic educaton is that how to behave as a person, so most of us do things based on experience, while western countries mostly focuse on how to do things right(To form methodology). The difference caused different developmnt style.

My opoion is that integrating west with east, absorbing best practices while abandoning bad parts. Now China's NEW economy mainly came from foreign advanced business model, and paid attention to creativeness and innovation.

I think part of the transition power lies in 2nd and 3rd level of cities in China, especially in western part of China. There are several clues:
1. With more and more manufacturing factories moving to west of China, it has created more and more job opportunities there to attract people come back to the 2nd and 3rd level cities which are nearby their hometown. This will create more opportunities not only for the urbanization, but also for commodity economy because they will bring life style cultivated in the big cities back to their hometown.
2. Chinese style of innovation is based on reengineering fastly at low cost. There are many universities in western China, especially in Xian and Chengdu. The low cost and abundant supply of Chinese students will empower the Chinese style R&D and create tremendous opportunities for innovation. This will also attract more and more company and investment in these cities and accelerate the economy in local.

Chen Yonglei wrote:

PENG, YAJUAN wrote:Looks like we are so productive in ideas generation, and your suggestions are quite inspiring.

Besides, I want to share a latest piece of news from my broker:

"Rumor said that President Xi will hold a top level economic working team meeting tomorrow afternoon, and will decide a Chinese version of The Marshall Plan, the key point is to invest RMB 4tr to overseas. The general idea is to require Chinese companies to guarantee foreign countries to invest in ports, highways and railways, which will use domestic over-capacity and Chinese companies will do the operation. China domestic port and highway companies are expected to become the main investors for this round overseas investment, and domestic construction companies will be the main contractors."

How do you think of it?

Your cites remind me of what Mr. Ken Wilcox, the president of silicon valley bank, said in the Fudan Global Leader Forum, he highlighted four points between the relationship of U.S and China. One of them is "China does need set low requirements for foreign companies to enter China, because they will help you."

Ture, China needs good practices from foreign countries and needs to learn western methodology. China's over 5000 years culture and basic educaton is that how to behave as a person, so most of us do things based on experience, while western countries mostly focuse on how to do things right(To form methodology). The difference caused different developmnt style.

My opinion is that integrating west with east, absorbing best practices while abandoning bad parts. Now China's NEW economy mainly came from foreign advanced business model, and paid attention to creativeness and innovation.

Thanks for your opinion.

It is really a big topic. Personally, I don't take a positive view on the the so-called "Marshall Plan" and reserved my opinions on the economic transition, let alone that Chinese Government, in most cases, is a "words-better-than-deeds" government.

It is interesting that my friends from law firms take negative view on the transition, while those from financial institutions are quite positive.
For the financial guys, there is always opportunity as long as you seize it. Any news can stir the stock markets up and down, and most of them are speculators; whereas the law firm guys think current political moves are served to the a certain group, and if the government cannot deal with them cautiously, the impact on economy is disastrous (Occupying Central Hong Kong is an example).

Both stands sounds reasonable. My point is the success of transition lies in whether it is served for the nation in the long run, how strong the determination (government) is, and what compromise we can accept. In short, like many of you said, people is a key factor of the transition, I would say, it's human nature that matters the most. However, judging from the history, I am of less confidence in the transition.

Speaking of which, I recommend you a novel "Animal Farm" written by my favorite writer George Orwell, it's about the human nature, and you will find something common.

Cheers!

As we all know the word-wide wave has already spread to us, and we have been enjoying the profits of the global village by 2001, the year China joined WTO. Under the terms of its WTO accession agreement, China is expected to receive market-economy status automatically in 2016. However these years the negotiations of TTP and TTIP, new rules of world trade, are in full swing without China since China is not accepted as a country with market economy. In face of such pressing situation, China has no choice but to do transition.
Meanwhile, overcapacity and environmental pollution, especially in the field of steelworks and heavy industry, block the sustainable development of China. The elimination of this excess and the process of adjustment to a new industrial structure to reflect changed demands means a greater service orientation to address an aging population, is invariably painful.
All of these domestic and international challenge are both demanding tasks which we still must to do. Otherwise The depression of economy will bring the decline of unemployment, furthermore which will cause a lot of social unrest.
So in short, in my opinion, instead of over thinking the economic benefits of the transition we should stand on the solid ground to overcome various kinds of challenges in it.

I am really worried about the China economy transition. Now the economy growth highly rely on real estate,government investment and export. With the economic drop in North American and European, the export is very tough to growth. But China's real estate actually is very high bubble. That's is my worrying.

This is great question that we should sincerely face and take actions from each of us. Chances are always with challenges.

The transition no doubt will be happened for China economic developments. Opportunities will be at the following:
1, Government policy foster
Since Chinese government has to reform so that China can develop sustainably in the world. We can clearly find out the research funds are increased, the policy of innovation enterprises are tilted such as from taxes to capital investments. The results are demonstrated and grown from index of China national innovation and Knowledge Creation in the world list.
2, Market space
Based on labor bonus, China becomes global manufacturing center. With previous experiences, China has great chance to create own brands. This is not short time easy task but also enjoy lots learning from partnership with global big companies.
3, China position in the global economic market
It’s clearly benefits from China GDP percentage in the international both from capital advantages and industries advantages. Although many political powers prevent and make blocks to China economics, it is definite showed thanks to the threat and quick achievements from China.

Challenges include:
1, Gap to advanced nations at science and technologies fields
Although China Made let us have chance to learn from global partners, it’s hard to get the core and under others’ control. We need to break through at science and technologies to create and produce our own patents to seize the initiative.
2, Education level and reform
Many discussion and arguments are at China education. Why we must study higher education in US or Europe? We contribute huge to USA and other countries at education market from middle school to PHD each year. We need to find out Chinese sole role and features to reform our education from government to schools. If we lost this field, we will lose long run.
3, Knowledge and contract spirit of play games
Credits and trusts are everything basement. We lose and damage our reputation from imitation and cheats, such as food safety, quality of products etc.

Although we have challenges in the innovation and high margin way, we already alert and catch up. Today we chase, we believe we can surpass sooner or later.  

Susan Yuan (Yuan Shuo)
2014GB

Wang Tong 14GB wrote:I totally agree with Celina,It's all about people!
The biggest challenge--the fundamental problem for us is still education. Since 6 years old, we are taught to find "the right answer". We Chinese are very good at imitating the example of teachers. People educated like this could be qualified workforce in low-cost manufacturing society: we get the instruction book, learn how to get an automobile part reproduced accordingly, and "Bang!", work done.

But innovation and creativity means there's no model at all.There are a lot of answers and possibilities to one question, and sometimes there's even no question exist that we have to creat them by ourselves. To raise right questions is the key ability in an innovation-based economy.To implant this spirit into our education system is the the fundamental accelerator for the transition of China.

The bright side is that, once we conquer the above challenge, base on the population, the long history and rich culture, we might show world-shaking creative power to others.

Agreed!

We are developing some new products lately, it's consumer products for promotions only, nothing high tech or really fancy. But when I sent sketches we made to a big factory in business, their boss told me" if you send us a product, it's easy to copy. but with such sketches, it's difficult for us to develop the product. You have to send us detailed drawings for tooling because here nobody does this kind of sophisticated drawing"... I was like

We Chinese could produce cars and huge vessels, we are even starting to build planes on our own. But we are only doing the easiest part of the whole process, manufacturing....

Nowadays, "Made in China" is going to get rid of "cheap and bad quality" image. But of course, it still has a long way to go to reach "high price, good quality" brand that worldwide customers are willing to pay for it. The market regard Chinese goods are good "copy cats", such as "Xiao Mi", "Tao Bao", and "Tencent". Even people from oversea are willing to use "Xiao Mi" smart phones. But, the margin of "Xiao Mi" is obviously not as high as iPhone. The company is trying to sell more products to increase benefits. This can not be a long term strategy. In the end, the core competitive ability of company would be depends on the innovation ability. We need not only "Made in China", but also "Design in China" products to increase our product margins. Innovation wins the market. Turn impossible into possible!

Actually, China's labor cost is not that low as before. That's why some manufactories transfer to India or Thailand for cheap labor cost. China cannot keep relying on cheap labor to attract foregin investment. Innvoation is the core that can bring China Economy into a new era. We all understand that it's not easy based on the "talents" here are almost all educated by China traditional education style. But at least it's good that we realize this.

There are many good points upstairs, just share my some opinions. Let’s look back from the history at the beginning.

In the past three decades since 1978 “reform and opening up”, GDP was roughly around 10%. Over this time, the country’s economy was investment-driven economy. It benefited from export, property industry, and urbanization. Since 2012, GDP diminishes gradually, from 7.8%, 7.6%....

On the one hand, capacity utilization in industrial area is low resulting from investment-driven economy. Economic growth is spurred by government investment for a long time, that is, it’s stimulated by printing money constantly. Then printing money constantly results in currency bubble, high inflation. Government dominates the market, and private capital is suppressed. On the other hand, there are a lot to be improved in infrastructure including housing, education, and healthcare. China’s personal savings rate is the world’s highest. The Chinese people don’t feel secure. The high savings rate hurt China’s economy because it reduces consumption. Last not the least, corruption is a big problem in political reform. Political and social reforms don’t catch up with economic reform.

Premier Li said that “Economic growth quality is as important as pace”. Although the previous three dividends is disappearing gradually, three new dividends are emerging---urbanization, consumption in the middle class of China, new opening up. Where challenges exist, opportunities exist. From my point of view in my work, government has made some policies to support grass roots entrepreneurship in next-generation internet, mobile internet and cloud services sectors. The government has guided early stage funds, established incubators, and made subsidy policies for innovate companies and so on to support small innovate companies’ development. Especially, consumption-driven investment and startups accounts for most in China and they promote economic structural changes as well at the same time. Still, there are some aspects required to be improved. For example, exit options in capital market are limited although there’s Chinext and so many good internet companies are listed in NASDAQ or other foreign stock market. In the financial sector, restrictions are still too many and market is dominated not by market but by government.

Before, there were many times when some western economists bad-mouth china’s economy, but china’s economy didn’t collapse. But they gave us some instructive comments, china’s sustainable economy development need reform-driven not investment-driven by government as before, and need our confidence in china as well.

Just share an interesting post I just saw on weibo.    

In reference to Beijing’s air pollution, Xi Jinping said, “we mustn’t be impatient in the face of problems” and that we should, “adopt a calm and collected life approach toward these problems.” When describing the coal pollution and severe sandstorms of his youth in Beijing he further added, “Back then we didn’t have PM2.5, but we did have PM250.” All those around him laughed aloud in response.
One wrote on his weibo: "The essence of what Xi said is ‘take your time’, and ‘adopt a calm and collected life approach toward these problems’. So if you shout bitterly or have too much hand-wringing over smog in Beijing, that indicates you lack ‘collected life approach’.”

In Chinese:
习近平讲话的精髓在于“急不得”，“用生活的淡定去面对这些问题”。所以说，若你为北京的雾霾而痛心疾首，或大声疾呼，说明你缺乏“生活的淡定”。

Definately it involves a lot of challenges for China to go from a manufacturing centre to an innovative based, high margin economy. China has huge population which adds complexity to the policy makers. China's current basic education is critisized by a lot of people however till now, there is no better way than the college entrance examination as it is the most fair and efficient way to select elites. China's enviorement is severely polluted, even in the capital city Beijing. China's mid to small sized companies feel extremely difficult to get support from the bankers. Chinese people are in a haste always and it seems the acculative wealth didn't offer the happiness as expected...In Chinese philosophy, opportunities always rest with challenges. The current govenment is putting a lot of efforts to turn the China society a more favorable place, the many overseas graduates come back to home country and contribute to its development, the local government realized the overcapacity and started to deal with the pollution problems, many foreign investment of schools, education institutions pop up in big cities like Shanghai, Beijing, Guangzhou, etc...

I think the biggest problem is innvoation. And when we talk about this issue, we must talk about our education system first. Defects of examination-oriented education is that it makes the students lack of creation. And when the whole generation has this kind of issue, the whole society will face the even more difficult situation.