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Next wave of industry to fuel China’s growth

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China today faces an inflection point: the ingredients that propelled its rapid expansion and unprecedented development over the past 30 years won’t fuel its expansion over the next three decades. Instead, China faces an opportunity to transition to a new wave of prosperity.

In order to move up the “value chain,” it must evolve from relatively commoditized manufacturing and lower-skilled assembly to a more innovation-based economy, which includes design, logistics, financial and business services, high-tech industries and life sciences. This is according to Deloitte latest competitiveness report, Competitiveness: Catching the next wave in China.

“There is no question that China’s economic transformation over the last three decades has been remarkable,” says Gary Coleman, Deloitte Global Managing Director for Industries. “To grow to even greater heights, China today must embrace new sectors and strategies for growth, as well as build a culture of innovation, in order to maintain its comparative advantage.”

The report maintains that in order to thrive amidst today’s global economic challenges, China must transition from labor- and capital-intensive activities to those that utilize knowledge, innovation, design, IT sciences, software, and marketing. The sectors driving China’s “next wave” of growth should focus on more specialized and innovative production:

Aerospace: Currently a small percentage of the nation’s manufacturing industry, aerospace has been identified as a high-priority sector in China’s growth plans. With government support, China has the potential to develop a viable aircraft industry, and could very well become a significant player in the aviation sector which has been dominated by U.S. manufacturers.

High-value machinery and components: China is likely to become a regional hub for machinery production. Similarly, a shift in electronics components has caused a rapid increase in trade of higher-tech products and components.

Life sciences: The domestic market for drugs and medical devices is rapidly expanding within the Chinese life sciences industry. With government support and rising investments from foreign pharmaceutical firms into research & development, China is positioned to become an important player by 2025—and potentially transform the dynamics of this industry globally.

Mobile technology: Now the world’s largest consumer of mobile phones, Chinese subscribers grew from 7 percent in 2000 to nearly 90 percent in 2013. Chinese innovation in mobile gaming, communications, e-commerce, and shopping software and services holds enormous potential to boost the nation’s competitiveness and spur new mobile-specific industries.

Internet e-tailing and social media: Online sales in China accounted for approximately six percent of all retail purchases in 2012 worldwide–higher than in the United States. The expansion of e-commerce sites into other business sectors, such as financial services, paves the way for additional growth opportunities within China’s economy.

Logistics and other services: Shifting to innovative and specialized manufacturing creates opportunities for companies to capture new value in the aftermarket for goods after production. Adding cloud computing and data analytics to business practices has tremendous potential to propel the distribution sector to one of the fasting-growing industries over the next two decades.

Health services: As China’s population begins to age and cultural standards evolve, the government continues to expand its investment in healthcare. Construction of urban hospitals and rural clinics, along with an increase in state-funded healthcare delivery, could contribute to expenditures of US$1 trillion by 2020, or equivalent to nearly 7 percent of GDP.

Education services: Education is a top government priority and critical to China’s economic development. Alongside companies opening private universities for their employees, annual government investment in education of about US$250 billion should help expand access to education, and boost the quality of the education system and its ability to support China’s transition toward a more services-based economy.

Energy: China’s rapid growth and development has created a demand for more innovative and environmentally-friendly energy policies. This demand is creating opportunities for China to address growing ambient air pollution and greenhouse gas emissions while fueling economic growth.

The report also discusses the role of government and the significance of trends identified in economic policies. Among these is the opening up of markets to increased foreign investment—critical to China’s continued growth trajectory and its ability to take its place on the world stage as an important trade partner and global leader. This report reaffirms that innovation is pivotal to China’s sustained transformation and economic growth in the 21st century. The key to instilling impactful and transformative innovation in the marketplace is ongoing policy development in important sectors including education, intellectual property protection, and market reform.

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Economy

Côte d’Ivoire: Robust growth under the looming threat of climate change impacts

MD Staff

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According to the Economic Update for Côte d’Ivoire, published today, the short- and medium-term outlook for the Ivorian economy remains positive. The economy is expected to maintain a steady trajectory, with GDP growth of 7 to 7.5% in the coming years. Titled “So Tomorrow Never Dies: Côte d’Ivoire and Climate Change,” the report highlights the urgent need to implement measures to ensure that climate change impacts do not imperil this economic progress and plunge millions of Ivorians into poverty.

“The solid performance of the Ivorian economy, which registered growth of almost 8% in 2017, is essentially due to the agricultural sector, which experienced positive climate conditions. The economy also benefited from a period of calm after the political and social instability of the first half of 2017 and from more favorable conditions on international markets,” said Jacques Morisset, Program Leader for Côte d’Ivoire and Lead Author of the report. “The Government also successfully managed its accounts, with a lower-than-expected deficit of 4.2% of GDP, while continuing its ambitious investment policy, partly financed by a judicious debt policy on financial markets.

However, the report notes that private sector activity slowed in 2017 compared with 2016 and especially 2015, which may curb the pace of growth of the Ivorian economy in the coming years. Against the backdrop of fiscal adjustment projected for 2018 and 2019, it is critical that the private sector remain dynamic and become the main driver of growth. This is particularly important in light of the uncertainty associated with the upcoming elections in 2020, which could prompt investors to adopt a wait-and-see approach.

As economic growth in Côte d’Ivoire relies in part on use of its natural resource base, the authors of the report devote a chapter to the impact of climate change on the economy. They raise an alarming point: the stock of natural resources is believed to have diminished by 26% between 1990 and 2014. Several visible phenomena attest to this degradation, such as deforestation, the depletion of water reserves, and coastal erosion. According to the Intergovernmental Panel on Climate Change (IPCC), climate change could reduce GDP across Africa by 2% to 4% by 2040 and by 10% to 25% by 2100. For Côte d’Ivoire, this would correspond to a loss of some CFAF 380 billion to 770 billion in 2040.

This report sounds an alarm in order to spark a rapid and collective wake-up call,” said Pierre Laporte, World Bank Country Director for Côte d’Ivoire. “Combating climate change will require prompt decisions and must become a priority for the country to maintain accelerated and sustainable growth over time.”

The report pays special attention to coastal erosion and to the cocoa sector, which represents one third of the country’s exports and directly affects over 5 million people. With 566 km of coast, Côte d’Ivoire now boasts a coastal population of almost 7.5 million people, who produce close to 80% of the national GDP. Two thirds of this coast is affected by coastal erosion, with severe consequences for the communities and the country’s economy.

The Ivorian Government, which is already aware of this challenge and has prepared a strategy to confront it, must expedite its implementation. This would have the two-fold effect of developing a “green” economy and creating new jobs.

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A future of work based on sustainable production and employment

Simel Esim

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On the first Saturday of July each year, the international community celebrates the International Day of Cooperatives. This year’s theme, Sustainable consumption and production of goods and services is timely, as the ILO works towards a future of work that is based on sustainable production and employment models.

As head of the ILO’s Cooperative Unit, I have witnessed firsthand the positive impact of cooperatives’ commitment to sustainable consumption and production.

In Northern Sri Lanka, for instance, after years of civil war, I saw how cooperatives helped build the resilience of local communities.

A rapid assessment at the start of the ILO’s Local Empowerment through Economic Development project (LEED) indicated that cooperatives were the only “stable” structures present in Northern Sri Lanka before, during, and after the conflict. Since 2010, the project has been supporting agriculture and fishery cooperatives by securing fair trade certification for their products and helping them establish market links.

I’ve also listened to inspiring stories from other parts of the world of how cooperatives have joined forces to contribute to sustainable consumption, production and decent work – often through cooperative-to-cooperative trade.

Some of these stories were shared at a recent meeting in Geneva of cooperative and ethical trade movements.

We heard how Kenyan producer cooperatives’ coffee has found its way on the shelves of Coop Denmark and how biological pineapples from a Togolese youth cooperative are being sold in retail cooperatives across Italy. We heard how consumer cooperatives in East Asia have developed organic and ecolabel products, while educating their members about the working conditions of producers and workers, as well as on reducing food waste and plastic consumption. We also shared ILO experiences in supporting constituents in the field.

The emerging consensus from the meeting was that cooperative-to-cooperative trade can help lower the costs of trade, while ensuring fairer prices and better incomes for cooperative members and their communities. Opportunities exist not only in agricultural supply chains, but also in ready-made garments and other sectors.

Cooperatives at both ends of the supply chain have been joining forces to shorten value chains, improve product traceability and adopt environmentally-friendly practices. At the ILO we have been working with our constituents to improve the social and environmental footprint of cooperatives around the world.

As the ILO continues to promote a future of work that is based on sustainable production and employment models, a priority for us in the coming years is to facilitate the development of linkages between ILO constituents and cooperatives. The aim is to encourage joint action towards responsible production and consumption practices, the advancement of green and circular economies and the promotion of decent work across supply chains.

Source: ILO

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Economy

Mongolia’s Growth Prospects Remain Positive but More Efficient Public Investment Needed

MD Staff

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Mongolia’s economic performance has improved dramatically with GDP growth increasing from 1.2 percent in 2016 to 5.1 percent in 2017 and 6.1 percent in the first quarter of 2018. While short- and medium-term economic prospects remain positive, Mongolia faces core structural vulnerabilities that hinder its potential, according to Mongolia Economic Update, the latest World Bank report on Mongolia’s economy launched here today. The report also highlights the importance of improving efficiency of its public investment programs given extensive consequences from the overambitious and unrealistic investment programs implemented in the past.

“Last year was a good year for Mongolia with favorable commodities prices and the successful implementation of the government’s economic recovery program,” said Dr. Jean-Pascal N. Nganou, World Bank Senior Economist for Mongolia and Team Leader of the report. “This resulted in improved fiscal and external balances, triggering a slight decline of the country’s public debt.

The recovery is expected to accelerate with a GDP growth rate averaging more than 6 percent between 2019 and 2020, driven by large foreign direct investments in mining. Other than agriculture, which was severely affected by harsh weather conditions during the winter, most major sectors including manufacturing, trade, and transport are expected to expand significantly. On the back of increasing exports and higher commodity prices, economic growth will continue to have a strong positive impact on government revenue, contributing to the reduction of the fiscal deficit.

The unemployment rate dropped to 7.3 percent in the last quarter of 2017, compared to 8.6 percent a year earlier. Still, it increased to 9.7 percent in the first quarter of this year, reflecting Mongolia’s highly seasonal employment patterns due to difficult working conditions in the winter, especially in construction, agriculture, and mining.

The report highlights possible short- and medium-term risks including political risks, regional instability, climate shocks, and natural disasters. The most critical risk identified is a sudden relaxation of the government’s commitment to full implementation of its economic adjustment program supported by development partners.

In addition, the economy remains vulnerable to fluctuations in global commodity prices and a productivity gap. The best long-term protection against these two vulnerabilities is the diversification of the Mongolian economy.

To create a strong buffer against economic vulnerabilities, the government and donors should give a high priority to economic diversification that helps counter the ups and downs of the mining sector. Investing in human capital and strengthening the country’s institutions are the best way to support diversification, together with sound investments in crucial infrastructure,” said James Anderson, World Bank Country Manager for Mongolia.

The report takes a closer look at public investment programs implemented over the past five years, which surged until 2015, contributing to large increases in public finance deficits and the public debt. Mongolia needs to review and reshape its public investment policies and decision-making processes to improve efficiency of public spending, including clear project selection and prioritization criteria, as well as proper maintenance of existing assets.

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