2021 is the year of Hope. All the countries of the world are hoping for an economic revival and China too. China is projecting to be a new country and already knows where to go.
#1 China’s economic growth rate will double in 2021
China will probably come out of the COVID-19 emergency in 2021. An emergency that has been faced above expectations. In fact, while all other countries of the world are struggling and still find themselves in serious difficulties in managing the pandemic situation, China seems to have been able to contain the infections for some time. And not only that, but the Chinese economy has also managed to grow, although obviously at lower levels than in previous years.
Source: Global Times
Not surprisingly, President Xi Jinping is very positive about the progress of the country and asserts that China will double its GDP between 2030 and 2035. This means that to reach this milestone, growth shall be between 4.5% and 5% every year, numbers that seem to be far away if you look at the +2% of last year. But that seems much closer if the 8% growth estimated by economic experts is achieved in 2021.
The +2% was driven by an exponential increase in exports in 2020, mostly related to the very high demand for IPR and the shortcomings of other states in the manufacturing sector.
As a result, even if 2021 is projected to be a year of growth for China, it won’t be without a good strategy. The economic recovery of other nations and the decline in exports will have to be replaced by heavy consumption. China will seek to stimulate demand through charges and tax cuts. Furthermore, it is expected to open its market to foreign capital and be increasingly permissive towards foreign companies, granting more licenses and canceling negative lists.
#2 China’s business center moving south
Source: The Economist
Northern China has always boasted strong economic power thanks to its deposits of coal and oil, which have been the main source of the country’s rapid industrial development. But China’s growth no longer seems destined to develop on the pillars of a low-cost workforce that can produce huge quantities of goods of any kind. On the contrary, this new growth appears to be “smarter.” Given the lower competitiveness of its price of labor compared to that of Southeast Asia and the rise of the Chinese standard of living, China appears to base its new and future growth in the tertiary sector and technology industries.
Let’s see what are the Top 10 Chinese cities with the strongest GDP in 2020:
To confirm what was said before, we want to highlight how technology drives the development of many cities on the list. In fact, a “Unicorn Island” was created in Chengdu with the aim of developing highly technological industries. Chongqing, on the other hand, is an important center for the space industry and innovation in the automotive sector. And then, again, Guiyang is famous to be a center in nanotechnology and big data.
Hainan is also worth mentioning. Indeed, China attaches great importance to the further development of the island, which in addition to tourism (it is, in fact, one among the favorite destinations of Chinese tourists); is now developing its aviation and internet service industries.
#3 China is becoming one the main protagonist in international relations
On 30 December 2020, the “EU-China Comprehensive Agreement on Investment” (CAI) was concluded after seven years of negotiations. Many technical details are yet to be defined, but in principle, we already know what will regularize the treaty. First of all, market conditions will be improved for those wishing to invest in China. A fairer treatment will be implemented between domestic and foreign investors and forced technology transfer will not be required of the latter. There will also be laws that will ensure greater transparency in the intentions of Chinese companies at home and abroad and an increase in the eco-sustainable line.
With regards to the economic relations between Europe and China, we must mention the Belt and Road Initiative, which in 2021 will increasingly be aimed at promoting the new key sectors for China: green and technology.
Beijing also sees itself as a protagonist in the APAC region. The Regional Economic Comprehensive Partnership (RCEP), which will promote a free trade market between ASEAN members, and Japan, South Korea, and Taiwan.
#4 Investments from mainland China to Honk-Kong will increase
Hong Kong is the main economic intermediary between China and the rest of the world thanks to its dominant role in the financial sector worldwide. More and more Chinese companies are participating in this financial market to receive foreign investments or to finance foreign companies, including Alibaba, JD, and Tencent.
The leading role of Hong Kong is important for many other reasons, for example, the spread of the Chinese currency in the world.
With the pandemic, the desire of Chinese operators to invest or to move to Hong Kong for business purposes has slowed down but this trend is expected to boom with the end of restrictions and the crisis in 2021.
#5 China is no longer the factory of the world (or at least going in that direction)
Always the holder of the title of “factory of the world” for its hunger as an exporter of large quantities of all kinds of goods, but now China changes direction. China is increasingly aiming for quality rather than quantity and the improvement of services. The country has had a very clear role as an exporter but is now accelerating its production path destined to satisfy domestic demand. The new needs of the market have changed the destination of their goods, aimed inwards.
On the other hand, with the new international treaties and the desire to have an increasingly prominent role in foreign markets, trade between China and other countries is improving. In fact, more and more Chinese entrepreneurs, instead of producing or investing in their own country, make investments abroad and build factories in other countries (Vietnam, India, Africa, Mexico, Brazil, Turkey, and Poland).
#6 Chinese sources of incomes are diversifying
In recent years, Chinese consumers have consistently increased their consumption (especially the younger generations).
However, there seems to have been a change of direction in the Covid era, or at least according to McKinsey, young Chinese people say they are now a little more worried about the future; and consequently, want to save more and planned to increase sources of income through wealth management, investments, and mutual funds.
#7 A growing demand for safer and greener products
Source: Cosmetics China Agency
The positive trend of safer and greener products is growing fast. It is certain, the trend will keep growing in 2021. Not only consumers are willing to spend more on high-quality products whose production does not pollute the environment, but the state itself promotes this trend. In fact, the state intends to allocate more resources to green debt financing instruments.
The search for healthy and eco-friendly products is “invading” all sectors in China: from cosmetics to tourism and above all the agri-food sector. It is obviously more pronounced among consumers belonging to a medium-high income bracket.
#8 Digital Healthcare Services keep winning market share
In China, telemedicine grew by 164% in 2020. The sector already was recording a strong growth but has experienced an exponential surge due to the pandemic, highlighting the shortcomings of an inadequate health system.
Despite the Chinese government’s increasing investment in many sectors over the past few years, the healthcare sector has not been a beneficiary. It is evident if we consider that the percentage of public spending dedicated to the health sector does not even reach 7%. Fortunately, probably also thanks to the Covid experience, many more investments are planned in the next five-year plan.
The gaps in the healthcare sector appear to have been filled in part by technology, which has been useful for telemedicine, remote patient monitoring, and online bookings. Augmented Reality and Artificial Intelligence have been fundamental for patient diagnostics and treatment as well as the digital training and robotic assistance of the surgeon.
#9 Chinese Companies are subjected to News Laws in 2021
From 2021 many companies will have a difficult life in China and many others will be able to breathe a sigh of relief. The Chinese government has decided to put significant stakes to curb monopolistic attitudes of the giants of the market, the application of these rules is now a certainty, the accusation against tech Giant Alibaba at the end of 2020 has been a clear example of it. If the Alibaba accusation of “forced exclusivity” makes several Chinese companies happy, the new privacy laws will bring happiness to Chinese consumers.
Yes, after years of charges about the improper use of Chinese consumer data extrapolated from the network, China finally decides to put a stop to such negative behavior, that damages citizens’ right to privacy. With the new rules, companies in China will have limits on use, limits on the times in which they can own this data and, moreover, companies will have to designate someone as responsible for “privacy”.
#10 The six industrial Pillars of China in 2021
China is already ahead of many other countries in three industrial sectors and wishes to increase exports in these fields through international agreements. These are:
- Intelligent technology (for example, applied to the development of smart cities and 5G)
- New energy vehicles
- Green technology
At the same time, China will try to rapidly grow the following sectors, the results of which are not yet satisfying:
- Semiconductor industry: Domestic demand continues to grow, and China can only satisfy 16% of it. The rest is imported. 350 billion dollars were spent on the import of chips in 2020. But now, China’s goal is to be able to produce as much as 70% of this requirement. According to subcategories, China already has an advanced production in testing, assembly, and packaging, while it is very lacking in the production and design of chips.
- Agriculture tech: The gap between urban and rural areas in China is very evident. This becomes clear we compare the development of technology in the countryside and to that in cities. Unfortunately, China is still far behind when it comes to Agriculture Tech. But times change, and now he aims to invest much more in this field. Local governments are helping companies that invest in technology providing subsidies since the future of agriculture in China is technology. This due to the decreasing willingness of young people to work the land and the lower costs for companies that use drones and artificial intelligence for crops.
- Biotech: Biotechnology is a bustling market in China. Numerous domestic and foreign investments, a lot of start-ups, M&A, companies, and universities, are all cofactors of the incredible development of the sector. In this field too, the foreign know-how and resources will drive growth.
To conclude on “China’s 2021 Forecasts”
This sum up shows how China is determined to move in a specific direction. Events and trends of 2020 have in part shaped the direction the country is taking for the coming years to position itself as a technology & trends-setters rather than a producer.
Not convinced by our forecasts? We’ll talk about it again in a year
Gentlemen Marketing Agency is a digital marketing company based in Shanghai that helps foreign countries develops their business in China.