By George Leong, B.Comm. for Profit Confidential
The time has arrived for China. For the country, this will be a critical moment in its continued development as a global power, with a change at the helm under its new President Xi Jinping and Premier Li Keqiang. China is currently facing a potential property bubble, and it's dealing with stalled growth from the eurozone as well as other key trading partners. (Read "Why Eurozone's Problems Are Headed for America.")
The new leaders will bring some youth to the leadership and generate fresh ideas for how China will be over the next decade, including increasing personal income levels and consumer spending to help lessen the dependence on foreign investment and exports. The country has targeted a modest gross domestic product (OTC:GDP) growth rate of 7.5% for 2013 and wants consumer spending to become more of a factor, as is the case in the United States and other industrialized countries.
In my view, it makes sense. As China becomes more powerful economically, a growing issue has been its massive trade surpluses, and this has not been well received by its major trading partners who are citing unfair advantage and currency manipulation. China understands this, which is the reason why the country wants to shift its GDP growth strategy to focus on raising domestic consumption.
I think there will be more exciting times ahead for the country and its citizens if things pan out under the country's new leadership. The next decade could be special for China, but Xi Jinping and Li Keqiang must work to avert an asset bubble and economic stalling.
China's GDP growth is estimated to expand at 8.5% in 2013, down from the previous 9.3% estimate, according to the Organization for Economic Cooperation and Development. (Source: "OECD Cuts China GDP Forecast, Sees Policy Room to Back Growth," MNI November 27, 2012, last accessed March 6, 2013.) Of course, there's still the risk and uncertainty, as the country's economic recovery will be continue to be dependent on what happens in the eurozone over the next few years.
If the country can increase income levels and get consumers to spend, then there will obviously be less reliance on foreign demand; but the shift could take a decade. Yet, supporting this shift are 1.3 billion people, a surging middle class, higher income levels, and a concerted government move to drive China's economic turbines to expand the country's power.
Unlike the United States, China has ample cash reserves of over $3.0 trillion that it can use to pump up the economy, which is a key reason why I remain positive on China. The outgoing government indicated it will spend a record amount to stabilize and drive the economy.
It will not be easy, given the size of the country, but if the country's new leaders can achieve its goals over the next decade, then I would expect more great things to come from China.
The bottom line is: I continue to like China longer-term. There is no doubt in my mind that the country could become a more influential and powerful country economically.