The Rise And Rise Of China

The Rise And Rise Of China

April 16, 2016 in Economics by Rob Power
Written For Incasso Partners

The Rise and Rise of China

“when the red dragon awakes, she will shake the world”- Napolean

While Napoleon’s fears are said to be based on the vast populations of poverty stricken citizens at a time when sheer numbers really meant something militarily, it is a different kind of force that China has used to shift the world on its axis in recent decades. Instead of vast armies, China now has vast legions of SME’s; there are more small-to-medium enterprises in China than there are in the U.S and Europe combined! Instead of attacking the world with armies, China has flooded it with its goods. In 1990 China accounted for approximately 3% of world manufacturing by value, that figure has now risen to almost 25%. Included in this are 70% of the world’s mobile phones, 80% of its air conditioners and 60% of its shoes!

Is China’s grip on world manufacturing weakening?

Any economist will tell you, that activity such as China has experienced in recent years will cause great inflation. As a result of this wages will rise therefor reducing the attractiveness of it as a manufacturing hub. This process, however, is not loosening China’s grip on manufacturing, if anything it’s tightening it. It’s such a vast nation that much of the inflation just doesn’t permeate into all areas, particularly when it comes to basic cost of living. In addition to this, the low cost labour that does leave the country is, for the most part, going to South-East Asia. China tends to maintain a big part in the supply chain for this and as such has a vested interest in keeping this production in Asia. In recent years China has begun producing far more of the materials that go into their goods with imported components falling from a high of 60% in the mid 90’s to around 35% currently. These raw materials can be sold on to production in satellite Asian countries reducing any negative impact of low cost labour leaving their borders. In addition to this, China will be well aware that a strong manufacturing market such as theirs can only greatly benefit from the enrichment of the markets on their doorstep. They have learned this lesson from the next great driver of their economy – their exploding middle class.

The New Economy of China

In 2011 a construction company in China erected a prefabricated 30 story skyscraper in 15 days. A time lapse of this astonishing feat of engineering can be seen here: This amazing achievement is an accurate metaphor for the growth of the Chinese middle class. When China began building itself on manufacturing, its customer base was very much the wealthier parts of the globe, but now in 2015 the Chinese middle class numbers over 300 million people, larger than the entire population of the United States. And just as the magnificent building is earthquake resistant and highly energy efficient, so too are the tastes of the new Chinese wealthy, modern and refined. The market for luxury goods has skyrocketed allowing for greater diversification in manufacturing for the domestic market and offsetting rising wage costs significantly. This taste for luxury goods is exemplified by the recent Chinese obsession with wine, particularly that of the Bordeaux region in France where Chinese interest in the product has been by far the most powerful influence in the market price in recent years. In fact, China now ranks No. 2 in in U.S. dollar Billionaires, just behind the U.S. themselves. Although experts in the Chinese economy would say that due to the sometimes shadowy nature of business in China, perhaps they are No. 1!

Business Potential in China!

China represents an unbelievably attractive prospect for almost any industry. They are a proud and curious people who are always interested in new things but now so many of them have the finances to explore their buying power. Of course, like all new markets, there are differing ways of doing business than you are likely used to, and it takes time and research to understand how to best work with your partners in China. It might be prudent to align yourself with an international debt recovery organisation in order to ensure you minimize fiscal exposure and garner advice on how best to enter into contracts. An international debt collection expert can help to clarify the muddy waters of what is quickly becoming one of the most fertile markets on the planet.

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