Collection: Li Lu - #9 'How China's Economy Has Changed In The Last 10 Years'
[Transcript]
BRUCE GREENWALD 00:00
Well okay, so let’s talk about the evolution of markets and in particular at a 2010 panel at Columbia Business School, you mentioned that Asia’s role in the global financial system was becoming increasingly important.
Looking back, how has Asia’s role evolved in the last 10 years, and what about China’s role going forward in both the world’s business economy and in the financial?
LI LU 00:28
The world has turned out exactly as we predicted, Asia indeed became a lot more important, in particularly China in it, has becomes even more important.
As I look at in the next few decades, I would say that the Chinese market, and Asia in general, will become even more important. The set of dynamics that are already set in place, will continue to play out in a robust way, so the Chinese security market in general and Asia economy, that will become increasingly a very, very important, evermore important component of the global market.
BRUCE GREENWALD 01:13
Well, all right, so let me give you some data that I don’t think is widely appreciated.
I mean, the Chinese numbers are obviously very difficult to interpret, at least the official numbers. And whenever you see that from a company, the data you really want to look at is the data where there’s a reliable counterparty, and the trade data is where there’s reliable counterparty because every Chinese export has to be an import from another country and every Chinese import has to be an export from another country.
Over the last 8 to 10 years, China trade has grown by only about 2.5% a year. That’s less than 1% faster than US trade. What does that say about Chinese growth? I mean, that’s clearly much slower than the trade growth prior say to 2010-2011, and it’s fluctuated obviously, but if anything, it’s been slowing down. What does that say about China’s future?
LI LU 02:16
Well, it tells you about the characteristics of the Chinese economy has changed fundamentally. You know, up until 10 years ago, what really propels the Chinese growth is – has been – was international trade to a certain extent.
And I would say back in 2010, the net trade – meaning the export/import netted it out – was roughly about 9% of GDP. And so Chinese economy was heavily dependent on the global market.
Now, what happened is that and they were growing at really double-digit growth at the time when the rest of the global economy was growing at much, much less, a fraction of that. And so at a certain point, once you become the largest trading nation, you can’t really grow, the rest of the world wouldn’t be able to keep up.
And the other thing that is happening is after the citizens become middle classes, their demand changes from basically just work, saving, into really work and saving and consumption. It’s just also human nature.
So roughly around 10 years ago, as you point out, the Chinese economy has slowly evolved into more of a consumer driven economy to the point that interestingly, last year was a watershed year in a sense that the retail sales, the total volume of retail sales for the first time overtaking the United States.
China was the largest retail market in the whole world at a $6 trillion. The US was roughly $5.5 trillion. Now grant it that was a special year in the sense that a global pandemic hit other countries harder than China, it’s also said that China had done a better job in managing the pandemic.
But basically the trend is there. China is emerging to become the most dynamic, fastest growing consumer market in the whole world, and that is likely to continue for many, many more decades to come.
And so that really makes Chinese even more attractive to the global economy in terms of people who want to sell to the consumers, to the middle class in China. And the characteristic of the economy would change and would also really provide unique and interesting opportunities for global investors.
BRUCE GREENWALD 05:10
Let me just talk a little bit about that. I mean, the thing about retail sales is that it’s selling goods. The thing about the developed economies is that they’re overwhelmingly service economies, they’re not goods economies.
And on that dimension, it doesn’t look like China’s doing particularly well. And as I say, the export data, you could understand that would slowdown, but the fact that the import data has slowed down just as much or more, tells you something about the nature of domestic growth in China. What about the challenges in the service sector in China?
LI LU 05:48
Well, you’re certainly right that at the current stage, the service sector has yet to become as powerful and dominant as most of the matured and developed economies in the West.
And that’s really (Inaudible) a new set of opportunities for the decades ahead of them. And that’s, by the way, not that much different than all the other developed economy at a comparable stage of the development, say, at $10,000-$11,000 per capita GDP, which is where China is today.
But if you look at the underlying dynamics of the various different businesses, different performance, both consumption, retailers and the services are basically the ones that are growing the fastest. And overall, trade internationally is still growing at a robust rate, but not nearly as much as the domestic side of the economy. And so that’s why their share of the GDP has gradually began to shrink.
So domestic consumption becomes far more important, both goods and the services, as you point out. So that just tells you that a different stage of the economy where it is today.
(Source: https://youtu.be/FiHrWy2jGbA)
