The Emerging Market in China - dummies

The Emerging Market in China

By Ann C. Logue

When you think about emerging markets, you may think first of the People’s Republic of China, if only because it’s so big. Still officially a Communist nation, the Chinese government maintains a tight control over the people’s lives, while promoting private ownership, international investment, and entrepreneurial ventures.

Some basics about China:

  • Type of government: Communist state

  • Major industries: Aluminum, armaments, cement, chemicals, coal, commercial space launch vehicles, consumer products (including footwear, toys, and electronics), fertilizers, food processing, iron, machine building, mining and ore processing, petroleum, satellites, steel, telecommunications equipment, textiles and apparel, transportation equipment (including motor vehicles, rail cars, locomotives, ships, and aircraft)

  • Currency: Yuan, also known as the renminbi (“people’s currency”) or RMB

  • English-language newspaper: China Daily

The pros of doing business in China

China is the world’s workshop, with the people manufacturing or assembling a wide range of products in demand around the globe. Already an emerging-market success, the country has plenty of room to grow before it’s considered a developed economy:

  • A strong financial-services sector: The country’s financial sector has evolved to meet the needs of a modern economy with global trade. In addition, the Chinese are savers, the national government has no debt, the banks have a good track record for responsible lending, and consumers keep saving money so the banks have funds to lend out to new businesses.

  • One billion consumers: China’s large population is its greatest opportunity. Most Chinese have a decent income by emerging-market standards. The Chinese have been making money and saving it, waiting for the day when consumer products are easy to get — a day that’s coming soon.

  • Privatization: Many of China’s largest industries have been privatized, and the government is working hard to convert more companies to private ownership structures. As that happens, China likely will see more growth and innovation. And international investors will have more access to securities in order to get exposure to China.

Risks of doing business in China

China’s transition to a market economy has been huge and mostly trouble-free, but that may not continue. Possible risks include:

  • Demographic imbalances: The government’s controversial one-child program has kept the population’s growth rate in check, and the preference for sons contributes to a growing gender imbalance. The policy has also contributed to an aging of the population — the average age is 35. As the population starts to skew older and male, it will shrink, and that may cause the economy to shrink, too as jobs are unfilled and the population of single men grows.

  • Environmental damage: China’s economic miracle has come at a high cost to the land, the air, and the water. The country is losing agricultural soil to erosion and to industrialization. The water table is dropping, access to clean water is limited, and the air quality is terrible.

    Increased production and consumption is likely to tax China’s resources further. If the government and the people don’t commit to improving the environment, China’s progress could dry up — literally.

  • Potential for unrest: Communism is theoretically a workers’ party, but many workers are unhappy, feeling underpaid for the long hours the work producing goods that sell for high prices overseas — some companies have experienced strikes. A shortage of skilled workers is pushing some wage rates up, which makes other sources of cheap labor more appealing.

    And how long the Chinese people accept restrictions on speech and tight government control over their lives remains a question. As China does more trade with the world and has access to more ideas, the people may want more freedom.