Don't obsess over China's GDP growth rate. The economy is vast with abundant opportunities. Here's my overview of predictions for China in 2016. ■ The 13th Five-Year Plan will be familiar, focusing on growth targets, green initiatives, and productivity; ■ Job losses and stagnant wages may dampen confidence... white-collar workers hit first; ■ Investment channels are maturing: ■ Chinese investors and foreign fund managers will have more options... but remember the fickleness of Chinese investors; ■ China's manufacturing is upgrading, not disappearing... winners will become global leaders; ■ Agricultural imports will keep rising... benefiting Australia, Russia, and the US; ■ Central power will strengthen; ■ Middle-class residents will move out of cities, not migrant workers in... Chinese cities are already overwhelmed; ■ Box office will boom... a domestic film will surpass $500 million domestically for the first time; ■ Globalization deepens, and the UK becomes a new favorite... the China-UK honeymoon will continue, and other countries will want to emulate; ■ Finally... it's too early to say China will win the World Cup, but real money is pouring into the Chinese Super League. While the world debates China's GDP growth rate, we often overlook the size of the economy. Regardless of the 2016 growth rate, China's position in the global economy and many industries will strengthen further. I believe that in 2016, China's economy will reach $11 trillion, with increased diversification and volatility, and its performance will be multi-dimensional. In fact, today's China is a collection of several trillion-dollar sub-economies. Their fortunes vary, with some leading globally and others not worth keeping. Your experience depends directly on your economic sector. In 2015, supplying cinemas was profitable, but supplying steel mills might have left you disheartened. Is the China you face a tiger with wings or a stagnant giant? Knowing the answer and preparing accordingly will directly determine your performance in 2016. In 2016, many widely recognized long-term trends will continue, with the most talked-about being the expansion of the service sector. In this article, I will, as usual, briefly touch on the most familiar trends and focus on those I consider more important and significant—trends that are accelerating or approaching a tipping point.
1. The 13th Five-Year Plan Will Be Familiar
Most of the 13th Five-Year Plan will be familiar. Perhaps the only challenge is how the government will interpret the new plan's essence in new official language. The government's growth target will remain above 6%, and other parallel goals such as quality of life (environment, health, income, etc.) may have some impact on growth. Maintaining growth will remain the core objective of fiscal and monetary policy. Therefore, we can expect interest rates to continue to fall, and the yuan will face depreciation pressure. Financial reforms will continue, further promoting market-based capital allocation. At the same time, reforms will progress in multiple areas: interest rate liberalization; the listing process (changing from approval to registration); easing access to financial services (especially for high-tech enterprises and foreign investors); and reinstating regulations suspended in summer 2015. Although the 13th Five-Year Plan advocates streamlining administration and delegating power, the central government will further strengthen centralization. Infrastructure construction will continue unabated, focusing on regional development, such as the Greater Beijing metropolitan area. In December 2015, China's commitments at the Paris Climate Conference and Beijing's red alerts for smog brought green initiatives into the spotlight. The central government's major environmental commitments to citizens leave local governments no choice but to push forward. The government will implement stricter emission standards, increase investment in non-fossil fuel development, and provide green financing. Both private and state-owned enterprises will compete to label their long-term initiatives as "green." Globally leading Chinese environmental products will be deliberately developed as a new export engine. For example, Chinese-made air purifiers will appear in large numbers in Delhi and across India in 2016. Besides green initiatives, globalization will remain an important topic, fully reflected in the Belt and Road Initiative. Finally, the 13th Five-Year Plan will fully recognize China's achievements in improving productivity over the past decade and will prioritize accelerating capital and labor productivity growth from 2016 to 2020. There will be a strong emphasis on the far-reaching impact of productivity gains: the disappearance of traditional high-paying jobs, the necessity of labor mobility, and the updating and development of labor skills. However, I worry that implementation will ultimately rely on local governments, and the areas most in need of labor skill upgrades are precisely those lacking funds and capabilities.
2. Job Losses and Stagnant Wages May Dampen Confidence
The job market may affect many people. For example, your industry may be in a long-term decline (such as steel or textiles), or even if output increases, technology is rapidly replacing labor (such as financial services or retail). The government must help these workers upgrade their skills to fulfill its promise that all sectors of society benefit from economic growth and that labor actively participates in the economy. The practice of local governments visiting large enterprises during the global financial crisis to "demand" no layoffs will be hard to repeat. Official statistics (which are optimistic in employment figures) show that in 2015, construction lost 15 million jobs. Mining employment is much smaller, but job losses are even worse than in construction. Workers cannot meet the skill requirements of modern services, but most are still young and capable. Large-scale skill upgrading is imperative. Not everyone can become a courier, and courier wages are far from middle-class standards. The public must be convinced that the government will provide them with the skills needed at all career stages. But whether for migrant workers or university graduates, the current education system has failed its mission. China needs to rapidly and broadly advance education, training, and apprenticeships to achieve the goal of a moderately prosperous society. The process will be complex and costly. Overall, the pressure to increase productivity and employment will slow household income growth and dampen consumer confidence in 2016. In 2015, personal consumption contributed more than 50% to GDP. If mishandled, the frenzy seen in the stock market in summer 2015 could sweep through the entire economy.
3. Investment Channels Are Maturing
Bank deposits and real estate remain the top investment choices for the public. However, after the roller-coaster housing and stock markets of 2015, investors naturally seek more stable investment tools. On one hand, a large number of wealth managers have emerged. For them, clients are often easy to find, but good products are hard to come by. On the other hand, investors find it difficult to trust financial advisors, as most simply recommend products with the highest commissions. Companies are actively responding to these trends. Large wealth management firms are aggressively promoting online direct sales. Online lending platforms are also expanding their business scope and applying for mutual fund sales licenses. Given the high probability of interest rate cuts in the next two years, it is an excellent time for pure bond funds, and online sales will have a big market. If retail investors collectively believe that yuan depreciation is inevitable, a large amount of funds will flow into wealth management companies offering foreign currency funds. In any case, the practice of investing primarily in second, third, or even fourth homes will become history. Changes in the regulatory environment have created more opportunities for overseas fund managers and brokers, with multinational companies already approved to establish wholly-owned investment management companies and foreign-controlled brokerage firms. The sales problems that many funds faced have been solved by the emergence of quality wealth managers and online sales. The money market funds launched by Alibaba and Tencent have contributed significantly to promoting online finance. But while seizing opportunities, always remember the characteristics of Chinese consumers—if a product loses money, they hope the government will bail them out; they are not yet accustomed to taking responsibility for their investment decisions. If products fail to meet expected returns, overseas fund managers should be prepared for online and face-to-face investor backlash. Although I personally hope that in 2016 the government will allow more investment failures and not repeatedly intervene, actual progress may be very limited.
4. China's Manufacturing Is Upgrading, Not Disappearing
The closely watched China Manufacturing PMI remains below 50 (below 50 indicates deterioration), and claims that the world's factory is in jeopardy are rampant. First, it must be clear: China's manufacturing will not decline. However, polarization will intensify: some will struggle to survive, while others will dominate. Many or even all manufacturing enterprises may have PMI scores permanently below 50, but world-class Chinese manufacturers will emerge at an accelerating pace. Two years ago, I mentioned that many Chinese companies lacked marketing skills and were unwilling to recruit functional experts outside their existing networks. But times have changed. Now, Chinese company executives often ask me to recommend functional experts (especially in data, marketing, and specific international markets). I am delighted to see them embracing talent. In 2016, people will realize that a "smaller" Chinese manufacturing sector is more globally competitive in many ways. This will be mainly reflected in Chinese companies participating in more international M&A. Another manifestation is that more multinational companies will not only blame China's economic slowdown but also point to local competitors that are moving upmarket and seizing market share at home and abroad. Admittedly, some Chinese manufacturing sectors have severe overcapacity, and many enterprises lack competitiveness. But many industries also have successful innovators, as mentioned in McKinsey Global Institute's recent report "The China Effect on Global Innovation." By extensively adopting traditional Western concepts—lean and modular design, machine learning, agile manufacturing, and smart automation—many Chinese companies are innovating at low cost. Their technologies are spreading among local manufacturers. Multinational companies in China are facing dual challenges of slowing growth and local competition. A few have exited, and I have encountered private equity firms eagerly negotiating asset purchases with them. More multinationals are shifting strategic focus from "investing in the future" to "cashing in," and correspondingly reducing cost structures. A few others will face the challenge head-on. In 2016, more multinationals will acquire Chinese competitors—if you can't beat them, buy them.
5. Agricultural Imports Will Keep Rising
In 2016, China's growing food demand will push agricultural import volumes and values to new highs, and the number of countries exporting agricultural products to China will also reach a record high. Take Russia as an example. After Western sanctions, Russia adjusted over a period, expanding infrastructure such as border inspections, to successfully shift its export focus to China (oil exports progressed much faster; China increased its share of Russian imports, reducing OPEC's share from over 65% to about 50%). In the first nine months of 2015 alone, grain and oilseed imports from Russia surged from 100,000 tons in all of 2014 to 500,000 tons. Even Ukrainian corn is being exported to China in large quantities via Russia. The effects of the China-Australia Free Trade Agreement will fully materialize by 2016, and I expect rapid growth in meat imports. The Australian government recently rejected Chinese investment on national security grounds, but Chinese investors' enthusiasm will not be dampened. Several Chinese companies have previously been approved and successfully invested in Australia, and others are considering investing in new Australian projects with international partners. Argentina, with a more stable economy, will not only compete with Australia in beef exports but also vie with Ethiopia in feed alfalfa exports. After a brief pause in 2015, the US will increase agricultural exports to China again, not only soybeans (which account for over 40% of historical US agricultural exports to China) but also other grains, intermediate products, and especially branded processed foods. These will be sold directly to middle-class consumers through the growing online grocery market. Food safety will remain a strong selling point for US and other international brands.
6. Central Power Will Strengthen
Chinese media reports indicate that economic decision-making has become more centralized over the past two years, particularly evident during Xi Jinping's frequent state visits. In 2016, China will further strengthen centralization, re-centralizing some powers that have been delegated but not effectively implemented. For example, after the approval authority for new power plants was delegated to local governments, more than 150 thermal power plants were approved through environmental assessments in 2015, compared to only 41 when reviewed by the central government in 2013. Coal production, unsurprisingly, became the approval champion, with no consideration of actual demand forecasts—or even whether new plants should use coal at all. State-owned enterprises are behind almost all new plants, and if a plant fails, someone will always take it over. Therefore, for various reasons, such decisions will be re-centralized. Another example is pensions. Mainland China's pension funds are mainly managed by provinces, with the central government filling gaps. This gives local governments no incentive to improve investment returns—currently 90% of funds are in bank deposits. In the future, the central government will implement unified management of pensions, professionalize investment, and remove inappropriate incentives. Guangdong and Shandong have already entrusted some assets to the National Council for Social Security Fund. More provinces will follow in 2016. A third example is SOE consolidation. This will reduce the number of SOEs, increase their scale, and create industry champions. The ruling party's proposed unified ideology is almost synonymous with centralization, meaning not only actions but also language and wording will need central approval. If consumer confidence declines later in 2016, it will be a severe test of the effectiveness of centralization. Can the central government act promptly and effectively to turn the tide nationwide? One-size-fits-all measures may not cover all aspects. This will be the biggest test of economic management capability.
7. Middle-Class Residents Will Move Out, Not Migrant Workers In
Despite massive infrastructure investment in major cities, severe congestion remains a daily reality. Even if the new Five-Year Plan promises further infrastructure expansion, these problems will persist—plans cannot keep up with changes. For example, Beijing's official population grew by 50% in just 14 years to 21 million, and the actual growth rate is much higher. Affluent cities will follow Beijing's lead in moving large numbers of jobs and people out of city centers. In Beijing's case, this targets not migrant workers but relocating government offices to move 400,000 to 2 million middle-class residents (numbers vary by plan version) to the outskirts. Satellite city projects so far have failed because they only moved people, leaving jobs in the city center. Satellite cities became dormitories, with people commuting between home and work, worsening congestion. Beijing has deep pockets, ample land, and millions of civil servants who can be directly directed. Other cities should carefully study local conditions and adapt.
8. Box Office Will Boom
In 2016, a domestic film will gross over $500 million domestically. The highest-grossing film in the US to date is Avatar, with $760 million. In 2015, leading domestic films included "Monster Hunt" (total gross of $380 million by September) and "Lost in Hong Kong" (over $200 million). The top international blockbuster was "Furious 7," which earned $400 million in China. China's box office revenue will undoubtedly grow by more than 50% in 2015, and new screens alone will bring over 20% growth in 2016. More than half of the top 10 films in 2015 were domestic, and domestic films accounted for 60% of total box office. Chinese producers and directors have clearly captured the excitement of local fans (and passed censorship). One risk to box office is the faster-growing online video. The 81-episode historical drama "Legend of Mi Yue" recently premiered simultaneously on Tencent Video and LeTV. Within 24 hours, online views reached 700 million. No wonder Alibaba invested $4.8 billion in a leading video site. Consumers seem unable to choose between cinemas and mobile devices. I believe this trend will continue, and 2016 will set a new milestone for the big screen.
9. Globalization Deepens, and the UK Becomes a New Favorite
In 2016, outbound investment will accelerate, with Belt and Road initiatives as key drivers. Another driver will be distressed asset acquisitions in basic materials and related industries: Chinese companies' M&A aims not at short-term asset returns but often simply at capital accumulation for long-term security. Finally, more M&A will come from private enterprises with global ambitions. These companies are particularly savvy in M&A, conducting thorough due diligence, using traditional consulting firms, and focusing on countries with good political relations with China and easier to deal with. For example, in 2015, China-UK relations reached a historic high, culminating in Xi Jinping's extended state visit in October. Chinese investment in the UK is not limited to iconic industries—from cars to luxury yachts, from oil to pizza—but aims to acquire technology, brands, talent, and market access. After the nuclear power project was finalized, China even believes that political factors will no longer be an obstacle to UK acquisitions. Every time I return to the UK, I see several Chinese private entrepreneurs wanting to invest and find partners. I expect that in 2016, with London becoming a major offshore yuan market, there will be large-scale financial investment, possibly even M&A of UK asset management companies. R&D investment will also rise. It is highly likely that Chinese private enterprises will partner with top UK universities, especially in pharmaceuticals, biotechnology, and advanced materials. Other countries will follow the UK's example and attract large-scale Chinese investment.
10. Finally...
My long-standing prediction about tycoons investing in football is about to come true, albeit much later than I expected. The photo of Manchester City player Sergio Agüero with Xi Jinping and Cameron went viral. It's only a matter of time before Chinese capital (specifically China Media Capital and CITIC Capital) invests in Manchester City and other global clubs backed by Qatar's fund. Other leading teams are studying how to enter the Chinese market. Arsenal and Real Madrid have already set up football training programs in China. Overseas football investment has grown for years, with Wanda acquiring Atlético Madrid in 2015. Most importantly, the broadcast rights for the Chinese Super League were sold for $1.2 billion, a 20-fold increase from the previous year. Domestic matches are starting to attract significant money. I believe that eventually, a rival to Guangzhou Evergrande will emerge. Match-fixing and gambling will be severely cracked down on. I won't predict when China will win the World Cup. The reality is that for China to reach the finals in the next few World Cups, FIFA would need to expand the final tournament to 40 teams. But the UK model proves that a country can build a successful domestic league without lifting the trophy. In 2016, China can take a solid first step in that direction. Finally, I will repeat my old advice: don't obsess over China's short-term economic performance. Try to identify medium-term trends in your industry. Enjoy China in 2016!
Further Reading
Wu Xiaobo: Foreseeing 2016 I recognize the storm and am excited like the sea. I stretch out and curl back, I break free from myself, alone In the midst of the great storm. —Rilke, "The Banner" This article is based on the speech at the Wu Xiaobo Channel Year-End Show:
1. The First Year of China's New Middle-Class Consumption
In 2015, the most adventurous thing we did was to oppose the "loser" economy, which is contrary to many internet thinking. Many believe that the internet economy is about "winning the world with the losers." In October, Credit Suisse released data showing that China currently has 800 million consumers with mature purchasing power, of which 600 million are "losers," and more than half of the remaining 200 million, i.e., over 100 million, belong to the middle class. These people have gradually become the mainstream consumer group in China in recent years. The possibility of consumption upgrading is because on the demand side, there is a middle-class consumer class of 100 million. 2016 will be the first year of new middle-class consumption. So for all commodity suppliers and entrepreneurs in China today, when you start your business activities, you must first ask yourself: who are you serving? The entire mass market has been dismantled. Now the entire Chinese consumer group is divided into two groups: one is the "loser" economy, and the other is the middle-class economy. I think the biggest differences between the middle-class economy and the "loser" economy are three: First, this wave is rational consumers. Second, they believe in quality, not low price and good quality. Third, circle-based. This may be the biggest blessing for China's consumption upgrade. I think this is a scene we will see in 2016.
2. The Beginning of the Financial Business Era
The past 36 years were the era of industrial business. Chinese entrepreneurs and businesspeople made money by doing publishing, home appliances, refrigerators, etc., and most of the profits came from industrial surplus. By 2015, after the market-oriented, diversified reform of the capital market and the intense capital bubble period, we will enter a new financial business era. Internet finance, insurance, wealth management products, and various asset portfolios will significantly improve household financial management. For enterprises, it is a trend to securitize their companies, products, and services as soon as possible. M&A will become one of the important ways for enterprise development. In addition, there are the New Third Board and the Strategic Emerging Board. By the end of next year, when we come to the "Year-End Show," the New Third Board may exceed 8,000 companies. Equity investment should become the most important wealth growth point for China's middle class. From then on, China will see a very large class called the rentier class. Each of us must take a new financial course because the entire market will undergo significant changes.
3. Community Economy Will Prevail
China has experienced the evolution of three major economic forms: from planned economy to commodity economy, then to market economy. Now a new form may have emerged. From the planned economy to the commodity economy in the 1980s, it was an improvement in labor efficiency. After 1992, the market economy was pursued, and profits were obtained through large-scale marketing campaigns. In the pre-internet era, it was a process of finding people through marketing. The upcoming community economy is a process from people to things. What is the community economy today? In the community economy, we have 1,000 people on site and 1 million people nationwide. After this group gathers, we ask ourselves what product we need. The rise of the community economy may be a very important event starting in 2016. Ma Huateng said that the future of the internet is content on the left and connection on the right. I would like to add something in the middle: values. Communities are distinguished by values. When these values are confirmed, countless business models will emerge. Community economy equals "circles + e-commerce." Such a concept did not exist a few years ago because the entire payment and business model had not formed. So, a very important thing to see in 2016 is that the community economy will become a new business experiment that looks small and beautiful.
4. Sports Marketing Will Be a Hot Wave
Sports economy is a form of experience economy. In 2016, there will be two major sports events: the Olympics and the 2018 World Cup qualifiers. And Evergrande just narrowly defeated Mexico's Club América. In 2015, countless capital went around the world to buy the best sports resources and sports companies. So, with the rise of the middle class, people's spiritual consumption will be greatly enriched, and sports will become a rigid demand in spiritual consumption. So in 2016, the sports industry will enter a period of explosion.
5. Traditional Enterprises Will Be Eliminated at an Accelerated Pace
This year, I have been to many places and heard that the real economy is very difficult. This difficulty is not over; it has just begun. During the "13th Five-Year Plan" period in the next five years, 80% of people in traditional manufacturing and traditional service industries will be collectively eliminated. China's future entrepreneurs will be a substitute-style change, a revolutionary replacement of old people, old business models, and old capital by new people, new business models, and new capital. In November, the central government proposed a new concept, supply-side reform, which is the first time since 1992 that attention has been shifted from the demand side to the supply side. China does not lack goods or purchasing power, but why can't goods be sold? The reason is a mismatch between supply and demand. What to do? Pushing on the demand side is useless. We need to accelerate the elimination of backward production capacity and use a large amount of capital to support innovative small and medium-sized enterprises. China's economy has not collapsed, and China's reform confidence has not been lost. The future is rational entrepreneurship. The era of barbaric growth will end in 2016. Those entrepreneurs who talk about concepts, play tricks, and make themes will leave the second half of China's industry. If we have a good commodity, a good product, and a good service, you will definitely find good capital and good consumers in China to help you go far.
6. Cross-Border E-Commerce Will Crack TPP
Since 1998, China has completed the transformation from a domestic trade economy to a foreign trade economy. Foreign trade bosses experienced a golden decade, but after 2008, China's foreign trade economy collapsed. In 2015, the worst macro data was foreign trade data. Since this year, we have seen changes at the industry level. In March, the State Council approved Hangzhou as the only cross-border e-commerce comprehensive pilot zone because Hangzhou has Alibaba. Over the past year, we have seen that under the efforts of the Ministry of Commerce, Hangzhou city, and Alibaba, we have formed a new cross-border e-commerce platform. In this Hangzhou cross-border e-commerce comprehensive pilot, all government services are conducted at one window, and this reform experiment has basically been completed. When all information appears at one window, it means that our future foreign trade platform will be involved in the interior of transactions, and big data will be the new driving force of the trading platform. 2016 may be the year for China's manufacturing to start again. If the scale of the cross-border e-commerce platform can reach 200 billion, China's foreign trade economy will be renewed within three years. TPP, a government-level cooperation framework, will be eaten by hundreds of thousands of Chinese enterprises like ants.
7. The Battle Between the Two Currencies Is Unpredictable
In the context of global currencies depreciating significantly against the US dollar, in 2014, the yuan depreciated 2% against the dollar, and in 2015 about 4.5%, making it relatively strong globally. But at the end of this month, the Fed will consider whether to raise interest rates, and 97% of economists say a rate hike is likely. So in 2016, the competitive relationship between the yuan and the dollar will become very sensitive and very sharp. With the implementation of our cross-border e-commerce strategy, China's foreign trade may have a chance to recover in the next few years, and the appreciation of the dollar will make the game very uncertain. The allocation of yuan assets and dollar assets is a problem we need to relearn. On one hand, we must enjoy the benefits brought by China's economic growth, and on the other hand, we must also learn to enjoy the benefits brought by the yuan's global game with the US.
8. Wearable Technology Is in the Ascendant
The internet economy has long been called a virtual economy, but this year the internet economy is no longer a virtual economy. It first impacted shopping, then services, then finance, and finally the real economy. The internet has clearly and stage-by-stage crushed the entire industrial economy and will transform from a virtual economy into a new real economy. In 2016, we will see a hardware revolution. This year, we found that many companies are conducting experiments in this area. Mobile applications will be greatly enriched. Wearable devices will, at some point in 2016 or 2017, ultimately change all our business ecosystems in some way. In 2016, we face many difficulties. China's economy may continue on a downward path—what we call the new normal. The hard times for traditional manufacturing factories and service enterprises are far from over, and may even remain bleak. But at the same time, we see that the new middle class has risen, new consumption power is being born, and there are transformative possibilities in both domestic and foreign trade. So we say the wind is very strong, as Rilke's poem says: I recognize the storm and am excited like the sea / I stretch out and curl back / I break free from myself, alone / In the midst of the great storm. Source: Geli Wealth 3 -END- Content Selection Reply with the following keywords to search and read related articles: Sales Supervisor, Second-Tier Management, Regional Manager, Distributor Management, New Channels, City Manager, Competition, 2015, Manufacturer-Dealer Game, Product Stagnation, Terminal Visit Management, Route Management, Deep Distribution, Internal Management, Sales Skills, Profit Improvement, Recruitment, Distribution, Daily Management, Team Motivation, Channel Promotion, Sales Misconceptions, New Product Launch, Township Market, New Product Pricing, Sales Target Achievement, Closing, Market Visit Inspection, Baijiu, Beer, Sales Increase, Agency Products, Channel Crossing, KA, Terminal Merchandising, New Market, Market Operation, Learning, Book Recommendations, Inventory Management, Sales Novice, Consumer Promotion, Execution, Old Products, Expired Product Handling, Model Market, Investment Promotion, New Media, Distributor Development, Performance Appraisal, Assessment, Annual Planning, Shopping Guide, Morning Meeting, Display, Transformation, Inventory Pressure, Holidays, Distributor Cost Control, Channel Operation, Marketing Theory and Laws, Brand Truth, Order Meeting, Team Management, Training, Debriefing, Debriefing Report.