The Re-emergence of China and the Three Big “F’s”

Let me just say that I am by no means a China expert, but since I started BRI over a decade ago, I have become increasingly interested in the Chinese economy and have seen first-hand on my visits there the many dynamic challenges and opportunities facing that vast country. While the subject of China could fill many chapters and many books, I wanted to share just some of my observations about China in our blog over the next couple of weeks.

1. The Re-emergence of China: any way you look at it, the numbers are staggering – while the US and European economies are mired in recession, China registered a double-digit growth rate in its GDP this last quarter and earlier this year China surpassed Japan as the world’s second largest economy. Yet if you ask any economist familiar with Chinese history, they will tell you that this is no big surprise, and that up through the 19th century, China’s economy was one of the largest in the world, occupying as much as one-third of the world’s economy in 1870. So, while it’s not been in our lifetime, China has been a strong economic power in the past and one might argue that the recent rapid economic growth is simply China re-asserting itself in the global economic stage after falling behind in the last century.

2. The Three big “F’s”: in a country of 1.3 billion people, any measureable cultural movement or trend is bound to have a significant economic impact across the world. Here are my top three for China, which I have conveniently categorized as the “three big F’s”:

Food – as the per capita income in China increases, one of the first things to get upgraded is diet, as consumers move from vegetable-based diets to animal-based diets. As a result, chicken and pork production increases and demand for imported animal feed ingredients, such as soybean meal, increases. According to the US Soybean Export Council, China is by far the largest export market for US soybeans, buying over 11.8 million metric tons of the crop last year, and has doubled its agricultural imports since 2002.

Fuel – one of the few bright spots in the automotive industry is the burgeoning growth in automobile sales in China. According to Bloomberg, sales of vehicles in July 2010 grew 15% from the previous year. All these new cars consume fossil fuels, driving the need for China to source oil by doing deals with oil-rich countries anywhere they can find them. In addition to its voracious appetite for oil, China's energy demands continue to climb, driving the need for alternatives to its ubiquitous coal power plants, creating opportunities for wind, solar or biomass energy.

Fendi – In my trips to China, I am amazed at the level of affluence and consumerism displayed in the big metropolitan cities. From Fendi to Ferrari, just about all the major luxury brands have a presence in Beijing and Shanghai. And as the Chinese government eases control of its currency (yuan), its value will rise against the US dollar and Euro and the buying power of the domestic Chinese consumer will become a real driver of economic growth within China. Whether the Chinese consumer will ever achieve the super-consumer status of Americans, however, is still debatable.

Next week, Capitalism, with Chinese characteristics…and is it too late to catch the China wave?