China not slowing for businesses
- By Nicolas Musy
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E-mail Shanghai Daily, February 24, 2014
A number of media have suggested that the current restructuring in China will come at the cost of faster economic growth. But in reality, we are seeing an acceleration of business results for international companies operating in China.
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Steady advances [By Jiao Haiyang/China.org.cn] |
It therefore seems timely to review what are often referred to “slower growth data” in order to understand their meaning for our businesses.
While it is true that China’s real GDP growth is no longer in the double digits and that it is likely to decrease from 7.8 percent this year to 7.2 percent in 2015, GDP as an economic measure does not fully reflect China’s business potential for foreign companies.
Indeed, what matters to companies doing or intending to do business in China is the amount of GDP the economy will be adding in terms of euros, US dollars or Swiss francs.
One must first look at how much GDP the Chinese economy is projected to add in the future and compare it with past performance. To get a global picture, it is also useful to compare this absolute increase with the amount of GDP growth generated by other countries in their home currency values.
As with every other country, China’s real GDP is reported as the added growth in economic value in the Chinese yuan, minus local inflation. This growth rate makes complete sense inasmuch as it captures the real economic progress that the country is making with respect to its previous year’s performance.
That said, companies throughout the world report their growth in their local currencies, without deducting inflation from their performance results. They measure a country’s market potential in absolute volumes (millions or billions of dollars) and not in growth percentages.
To illustrate this, take the case of Mongolia. With a 2013 real GDP growth rate of 12.5 percent, Mongolia is considered by the International Monetary Fund to be “one of the fastest growing economies of the world.” This growth, however, is based on 2012 GDP of about US$10 billion. Taking inflation (of about 10 percent) and currency devaluation (of about 27 percent) into consideration, Mongolia last year added only slightly more than US$1 billion to its economy. By comparison, the US, which only grew by 1.9 percent in the same year, added approximately US$500 billion to its GDP.
