Growth of Chinese Markets

by Business Case Studies on Monday 21st May, 2007

Growth of Chinese Markets

The Chinese government is recognising what many multinational companies have for some time – the potential importance of Chinese consumer demand. Data from April shows record growth of retail sales in this huge country – with annual growth of 15.5% (BBC, 15th May 2007). Previously, the Chinese government was considered to be focusing on export lead growth. However more recently, it has introduced changes to policy instruments (such as lowering taxation) to try and stimulate domestic demand.

Whilst there is evidence of domestic growth in demand, China still continues to benefit from strong export markets. Outsourcing of manufacturing from Europe, USA and the rest of the world to China still proves to be an attractive method of reducing costs for many firms. In the first three months of 2007, China exported $252bn worth of goods (BBC, 14th May 2007). This represents significant growth, with an increase of 27.8% on 2006, and delivers nearly double the trade surplus it had in the previous year. However, there are some niggling concerns that this low cost manufacturing is at the expense of working conditions within Chinese factories.

For the rest of the world, the development of the Chinese economy can also represent some opportunities. Anglo American is one of the world's largest mining and natural resources companies. The Times 100 case study about this company suggests that China's rapid industrialisation and construction boom means that, over the coming years, China may grow to account for up to 50% of demand within the industry.  

Other companies too have recognised the opportunities of the Chinese market. For example, General Motors is reported to be investing $350m in a new automated factory in the country – producing minivans for the local market (BBC, 17th May 2007).

The question that many commentators are asking is whether the pace of change in the Chinese economy can be sustained. The high levels of investment being made by many multinationals in the area suggest they believe it will. Only time will tell …

Sources:

China retail sales top forecasts – BBC News, 15 May 2007

The changing face of outsourcing – BBC News, 14 May 2007

Cracking China's car market – BBC News, 17 May 2007

http://www.thetimes100.co.uk/case-study–working-for-sustainable-development-primary-industry–65-211-1.php

Potential Study Questions:

For economists: Explain how the Chinese government has used an expansionary fiscal policy to stimulate growth within the economy.
For economists: Why might the high growth of the Chinese economy be considered unsustainable?
For Business Studies Students: What are the potential opportunities and threats of the growth of the Chinese economy for British businesses?

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