Ten years ago, China’s economy was powering ahead, enjoying buoyant GDP growth of more than 10% per annum.

Fast forward to 2020, and as we commence a new decade, many are questioning the extent to which the brakes are on the world’s second largest economy.

According to the International Monetary Fund (IMF), China’s growth is expected to moderate this year to around 5.8%. This is down from 6.1% in 2019, and the lowest rate in 30 years.

But before sounding the economic alarm bells, this downward trend needs to be viewed through the lens of China’s ongoing transition towards consumption-driven (as opposed to manufacturing-led) growth, as well as its continued demographic shift.

China’s population has also shifted from being mostly rural 70 years ago (with just over 10% of people living in urban areas), to now having 50% of the population living in cities. That figure is projected to rise to 80% by 2050. 

Figure 1. China’s demographic. Source: National Bureau of Statistics and China Statistical Yearbook 2017.

And China’s economic growth in the range of 5-6% is still robust, especially when compared to the sluggish global economy that is grinding along at just 3.5%, according to the IMF’s forecast.

So what will the next phase of China’s economic evolution look like? What will drive growth and jobs in an increasingly urbanised and middle class China? How will China sustain its transition from a production-led economy, to an economy increasingly focused on domestic consumption?

And, with Australia and New Zealand both continuing to grow their bilateral trade with China, what shape will the opportunities of the future take?

How to navigate the Greater China market

In response to these challenges, China has put a number of central policy platforms and major initiatives in motion to fuel the country’s next wave of growth. These warrant careful consideration and analysis by any Australian or New Zealand business looking to navigate the contemporary greater China market.

A good example is the rise of free trade zones (FTZs), special economic zones, export processing zones and technology development zones, launched by both the central and provincial governments.

There are currently 11 FTZs in operation (and an additional zone planned for 2020), which offer international businesses various administrative and trade incentives such as easier licensing processes, tax concessions and advanced infrastructure to encourage the establishment of businesses and industries.

Each FTZ has a specialised, and complimentary focus, meaning prospective Australian or New Zealand companies should ‘shop around’ to access the benefits that best fit their business.

For instance, the Shaanxi FTZ in central China is intended to promote cultural exchange and economic cooperation with countries involved in China’s Belt and Road Initiative. In contrast, the Shanghai FTZ, which is included in the Australia-China Free Trade Agreement (ChAFTA), offers Australian business better customs treatment, a range of financial liberalisation activities, some tax benefits and various reductions in red tape.

Figure 2. China’s Free Trade Zones. Source: Source: National Bureau of Statistics and China Statistical Yearbook 2017.

“Each free trade zone has a specialised, and complimentary focus, meaning prospective Australian or New Zealand companies should ‘shop around’ to access the benefits that best fit their business.”

The rise of China’s super regions

Another noteworthy, but lesser known, growth initiative is the rise of China’s super regions.

China’s City Cluster Plan aims to develop 19 mega urban clusters over the coming years. Anchored around giant hubs, these clusters contain dozens of smaller, but still very sizeable nearby cities.

China already has three existing mega cluster regions – the Yangtze River Delta, the “Jing-Jin-Ji” zone surrounding Beijing, and the Greater Bay Area of Hong Kong and Shenzhen. Combined, these three clusters already account for about 90% of China’s economic activity.

The Yangtze River Delta cluster encompasses the economically developed regions of Shanghai Municipality, Zhejiang and Jiangsu Provinces, which account for 40% of China’s GDP. This internationally oriented region has been central in China’s economic development, trade and economic engagement with the world economy.

A more recently developed geographic cluster integrates Beijing with the port city of Tianjin and neighbouring Hebei province. Known colloquially as “Jing-Jin-Ji”, the super region is already an economic powerhouse, with a combined GDP that accounts for about 10% of China’s total GDP and a population of more than 100 million people – three times that of the Tokyo megalopolis.

Jing-Jin-Ji is also home to Beijing’s second international airport, Daxing International Airport, which opened in late 2019. When fully operational, it will be the world’s largest airport, connected with the local subway and high-speed rail, to help facilitate Jing-Jin-Ji’s ongoing economic transformation.

“Jing-Jin-Ji [Beijing-Tianjin-Hebei province] accounts for about 10% of China’s total GDP and has a population of more than 100 million people – three times that of the Tokyo megalopolis.”

The third super region – China’s Greater Bay Area (GBA) – warrants especially close consideration by Australian and New Zealand businesses. The GBA includes Hong Kong, Macau, Shenzhen, Guangzhou and seven other cities. With a combined GDP of US$1.6 trillion, it is already home to 71 million people.

The GBA is already a well-established global financial centre, and is quickly developing as an international and technology hub (one of the seven key pillars in the official Greater Bay Area Outline Development Plan).

Enhancing connectivity is at the core of the Plan, which aims to promote a coordinated approach to high-quality regional development, while supporting the ongoing opening up and reform of Greater China’s economy.

The GBA’s scale and pace of growth means it could rival the likes of the Tokyo and San Francisco Bay areas.

The key elements of the GBA Outline Development Plan are:

1. Developing an international innovation and technology hub

2. Enhancing infrastructure connectivity

3. Building a globally competitive advanced manufacturing industry

4. Strengthening environmental protection and conservation

5. Developing a “quality living circle” by increasing access to education and training, health and leisure, cultural institutions and social security

6. Strengthening cooperation and participation in the Belt and Road Initiative

7. Jointly developing cooperation across Guangdong, Hong Kong and Macao

Developing human capital

A growing number of Australian and New Zealand organisations are also realising that the opportunities in the GBA extend well beyond financial services into a range of diverse other sectors.

Tertiary education offers a prime example, with the GBA’s rising economy creating a need for a large and highly skilled local labour force, as part of the push to establish a “quality living circle” and access to training, health, leisure and culture.

First movers can have an early advantage. Sydney-based Macquarie University is quickly making inroads to foster this unique opportunity. In November 2019, Macquarie Business School signed a new agreement with Sun Yat-Sen University in Guangzhou to establish the Greater Bay Area Business School.

This strategic partnership positions Macquarie as a prime provider of tertiary education and business skills to directly develop human capital and bridge talent gaps in the GBA, as well as providing expertise and thought leadership in the sustainable development of the super city cluster. This alliance is one of the first partnerships that aims to play a leading role in driving the human capital and productivity narrative well beyond 2035.

This proactive example also shows why understanding and knowing how to navigate the policy changes and major economic initiatives underway in Greater China is key to succeeding in this quickly evolving market.

Organisations looking to be part of China’s next wave of growth will need to know how to identify targeted opportunities, stay abreast of changes and ongoing reforms, assess and mitigate risks and build the practical capabilities required to forge lasting, sustainable partnerships.

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