Behind the BRICs: China

Lu-Hai Liang looks at how the world's fastest-growing economy is changing

Today, China is the world's second-largest economy. Just 20 years ago, however, its GDP was less than half the size of the UK's - a country that could fit 39 times into the Asian nation. China's rise from a third-world developing nation into a global powerhouse ready to export its brands and technology worldwide has been unprecedented. What's more, China's economy is predicted to overtake the US economy as early as 2016, according to a paper published by the Organisation for Economic Co-operation and Development (OECD) in November 2012.

And yet, over 70 per cent of China's 1.3 billion people live on less than $5 (£3.30) a day, according to the World Bank. It is a land of huge contrasts. Away from the prosperous coastal regions and the surging metropolises of Beijing and Shanghai, much of inland China is still relatively undeveloped with a large rural population. Still, the country's rapid growth, increasing military might and undoubted importance in the global economy has led some to call this the "Chinese Century".

Analysts and experts have viewed China as the leading force in the BRICs, an acronym coined by Goldman Sachs economist Jim O'Neill in 2001. Brazil, Russia, India and China, with their fast development and raw economic potential, were predicted to overshadow the economies of the G7 by 2050. China, however, accounts for much of the clout, with its GDP greater than the combined GDPs of the three other BRIC members.

"China is the largest and most stable economy of the BRICs and will lead them for the foreseeable future," says Dr. Hinrich Voss, a research fellow at Leeds University Business School. "The sheer economic size of China and its growth rate will also draw most attention to it, and away from the business opportunities in the other three countries," he says.

Made in China

China was a weak communist giant following Chairman Mao Zedong's death in 1976. But into the power vacuum stepped Deng Xiaoping, who laid the foundations for where China is today. His "Reform and Opening" policies focused on export-led growth and light industry, such as the production of clothing and home appliances.

Eventually, through careful reforms and legislation, China, experienced the fastest economic growth rates in the world, averaging 10 per cent per year between 1990 and 2004. This phenomenal pace of development, in a single generation, is something that all Chinese have experienced, but it has been especially profound for those who remember humbler times.

Guo Jing Xu, 56, is an author and educator living in Beijing. She talks about the changes she's seen: "Forty years ago, China was very poor," she says. "There was no big gap between urban and rural areas. Everything related to living, such as food and clothes, was very scarce. We had to buy everything with "the tickets" which were limited to one per person. But today, there are thousands of things provided in the malls and people can afford them."

However, not all the changes have been positive. "Twenty years ago, no matter where you were in China, you could always see the blue sky and fish in the city rivers. Now, the water systems of both the south and the north are contaminated," adds Guo Jing. Environmental concerns are hot on the agenda after the worst air pollution in modern records was measured in Beijing this January. The air was rated 755 on an air quality index, on which a reading of 301 to 500 is considered hazardous and people are advised to stay indoors.

Outbound ambitions

The industry and manufacturing sector, established by Xiaoping, still accounts for much of China's economy, but its focus is beginning to change. Traditional industries, including clothing manufacture, are starting to move to countries such as Bangladesh and Vietnam. Meanwhile Chinese companies - from telecommunications firms to fashion retailers - are becoming well-known overseas. Chinese technology firms, in particular, have made huge strides recently, with names such as Lenovo and Huawei gaining international attention.

Dr. Voss, an expert on the internationalisation of Chinese companies, says Chinese brand names will be commonly known worldwide in ten years' time. He says: "The internationalisation of Chinese firms through direct investment [in foreign companies] had only really started around 2005 - with the acquisition of IBM's PC business by Lenovo and the acquisition of MG Rover by Shanghai Automobile and Industrial Corporation (SAIC). These deals have put Chinese brands into the public eye and they've stayed there since, with other Chinese brands following.

"The success of Chinese brands in Europe is being communicated to Chinese firms with less international experience, and they will attempt to join companies like Lenovo and Bosideng (a fashion retailer) and offer their products on the British high street."

Chinese firms acquire European and American businesses for reasons including access to technological know-how, and to secure distribution channels and open-up foreign markets previously closed to them. Among the BRICs, too, there is increasing trade and investment. "For Brazil and Russia, China can be an important economic stimulus by increasing demand for locally-produced commodities ranging from food to minerals and oil," says Dr. Voss.

Spending power

In addition to industrial exports and the international expansion of its companies, China's services sector is also quickly gaining ground. A feature of China's recent economic success is a rapidly expanding middle class and an exponential increase in the number of Chinese billionaires. As a result, China is now the second-largest market for luxury goods behind Japan. "In China, the economy is not so much about exports and government investments anymore," explains Anna Stupnytska, an executive director and macroeconomist at Goldman Sachs, "it's more about private consumption. This private consumption needs to continue to develop for China's growth model to be sustainable."

Through measures such as raising the national minimum wage, the Chinese government is seeking to further increase consumer demand within China, as both foreign and Chinese businesses seek to exploit the country's massive consumer base.

Nevertheless, while the affluence of city dwellers grows, the gap between rich and poor is ever widening - a challenge the state has yet to overcome. In order to achieve its potential, China must also address its transportation and infrastructure network, which is seriously underdeveloped. A recent McKinsey Quarterly article explained: "China lags furthest behind other nations in the number of airports with paved runways: the world's most populous country has 452 airports, Brazil 713 and the United States 5,194. Forty-four Chinese cities with more than a million people still have no mass-transit system other than buses. The supply chain for agricultural products remains rudimentary."

The government is now dealing with these issues in its latest five-year plan. The main theme of the plan is a focus on the quality of growth rather than the quantity of growth, with an eye on energy efficiency and innovation as well. All of this underlines that China's ambition is not all about chasing GDP growth.

Size doesn't matter

"To be number one or two [economically], it is not important," says Guo Jing. "The most important thing is if [the economy] could bring benefits to man, society and nature," adding that the speed of development has brought a lot of problems such as environmental degradation, an "indifference to urbanised life", and work anxiety.

Woody Wu, 23, a photographer working in Beijing says: "I remember when I was young; the country looks totally different today, which is a very interesting experience. But I think the government should do more to make everyone enjoy the benefits of developing. Becoming the number one economy [will] mean I can be more confident as a Chinese person, but if I can't enjoy the benefits as an ordinary citizen, I don't think it's so important."