China: Boom, Bust or Somewhere in Between?
There has been much hype, media focus and speculation throughout the last decade over what is happening and what the future holds for China, from a financial perspective. This fascination is partly down to sheer size — as the world’s second largest economy, everyone watches closely in fear of catching the proverbial cold if China sneezes. For much of the world, there is also something inherently fascinating about a country with such a vastly different political ideology, experiencing such resounding economic success.
What do the Numbers Say?
It would be easy to assume that China is on the brink of disaster, if you go no further than the headlines, but it’s important to take a closer look at the figures. The Chinese economy grew 18 percent or more in dollar terms in 2006, 2007, 2008, 2010 and 2011, only falling short of that mark in 2009 because of the global financial crisis. However, in 2013, the gross domestic product (GDP) of China grew by just 7.7 percent, the worst since 1999, according to the National Bureau of Statistics.
While there is no denying that last year’s GDP growth rate of 7.7 per cent is well below the average over the last decade, it is also well above the 7.2 per cent minimum set by Premier Li Keqiang in November, which would be sufficient to maintain employment at present levels. Last month the New York Times pointed out that although China’s current economic figures do show a slowdown, they still indicate that the country is growing almost four times as fast as the United States in dollar terms, rapidly closing the gap in the size of the two countries’ economies.
Why are the Numbers going South?
Over the past 30 years China’s economy has undergone major changes, from being a centrally planned system that was largely closed to international trade, to a more market-oriented economy with a rapidly growing private sector. In November, the country announced dramatic new social and economic policies, which in the longer term will mean a greater reliance on market forces than it has previously, as well as allowing private sector and foreign competition in industries that were previously controlled by central government. Prominent Chinese leaders have made it clear that they are willing to accept a slower growth rate if this leads to a more sustainable expansion of the country’s economy. These drastic changes will inevitably require an adjustment period, which many argue is what we are now seeing in the numbers.
Simultaneously, there is a shift in production occurring. Last year for the first time in history, China’s output of services, which contributed 46% of GDP, finally surpassed the output of its industry (44%). This economy, which has to date been based primarily on making things, last year made more out of doing things, which of course involves a shift in perspective and workforce, as well as markets.
What about China’s Human Resources?
These changes in the market will also undoubtedly affect China’s human resources. In order to predict what may happen in this space, it’s useful to have a look at the trends that have emerged during the boom time in the country. Until recently companies have had a focus on business strategy rather than cost, while simultaneously salaries in China have increased at a significantly higher pace than other countries in the region (30+% in the HR market). According to Yi Wang, former Head of China HR for French pharmaceuticals Sanofi in Shanghai, “The slow down has not yet resulted in workforce reduction. In fact, there is still a lack of qualified labor. But as 50% of companies are seeing a slowdown in profit growth, this will have an impact on salary increases.”
As indicated by Wang, China’s economic prowess has also brought with it significant challenges related to companies’ finding and developing enough senior executives and skilled management professionals to keep up with the pace of growth. We have seen organisations responding to this gap by developing their own talent in China, bringing in expatriates, and even sending local executives abroad to further develop their skills and experience in an international context. According to Lilly Liang, Director HR, Greater China with Diageo, “With the job market softening over the past decade in the western world, more and more talent from the West are willing to relocate to Asia. Markets like Mainland China, Hong Kong, and Singapore are top on their list. From the other side, the young generation in China is mobile and is willing to move to other countries to get international exposure. In particular, those who have studied abroad can find it quite easy to work in different cultures.” We have also seen that local talent with international experience continues to be in high demand, and we do expect this to continue.
Interestingly, companies have been looking beyond the traditional business centres of Beijing and Shanghai to locate employees elsewhere, and we are seeing an increase in executive assignment volume in cities like Chengdu, Dalian, Tianjin, Qingdao, Shangyang and Chongqing. While only a small minority of multinational companies are currently active in these cities, those looking to these locations as assignment destinations within the next three years has grown by more than 50 per cent on average.
Another recent significant change in China has been the relaxing of its infamous one-child policy. While this may not seem to be a major economic influence on the surface, it does open the country and its people to new opportunities, while inspiring new hopes and dreams, which we know can affect an economy. Global management consulting firm, The Boston Consulting Group believes that the current drop in China’s growth will not continue and that China’s economy will carry on growing. Liang summed up the situation as follows: “I believe this is a natural step in shifting to a more established and healthier economy. I’m positive about the sustainable growth in China in the mid-long term.” With so much change at the policy, market, community, and even individual levels, it will remain interesting to observe China over the next few years to see how the nation — and its economy – adjust.
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