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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.

Economy

The Covid After-Effects and the Looming Skills Shortage

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coronavirus people

The shock of the pandemic is changing the ways in which we think about the world and in which we analyze the future trajectories of development. The persistence of the Covid pandemic will likely accentuate this transformation and the prominence of the “green agenda” this year is just one of the facets of these changes. Market research as well as the numerous think-tanks will be accordingly re-calibrating the time horizons and the main themes of analysis. Greater attention to longer risks and fragilities is likely to take on greater prominence, with particular scrutiny being accorded to high-impact risk factors that have a non-negligible probability of materializing in the medium- to long-term. Apart from the risks of global warming other key risk factors involve the rising labour shortages, most notably in areas pertaining to human capital development.

The impact of the Covid pandemic on the labour market will have long-term implications, with “hysteresis effects” observed in both highly skilled and low-income tiers of the labour market. One of the most significant factors affecting the global labour market was the reduction in migration flows, which resulted in the exacerbation of labour shortages across the major migrant recipient countries, such as Russia. There was also a notable blow delivered by the pandemic to the spheres of human capital development such as education and healthcare, which in turn exacerbated the imbalances and shortages in these areas. In particular, according to the estimates of the World Health Organization (WHO) shortages can mount up to 9.9 million physicians, nurses and midwives globally by 2030.

In Europe, although the number of physicians and nurses has increased in general in the region by approximately 10% over the past 10 years, this increase appears to be insufficient to cover the needs of ageing populations. At the same time the WHO points to sizeable inequalities in the availability of physicians and nurses between countries, whereby there are 5 times more doctors in some countries than in others. The situation with regard to nurses is even more acute, as data show that some countries have 9 times fewer nurses than others.

In the US substantial labour shortages in the healthcare sector are also expected, with anti-crisis measures falling short of substantially reversing the ailments in the national healthcare system. In particular, data published by the AAMC (Association of American Medical Colleges), suggests that the United States could see an estimated shortage of between 37,800 and 124,000 physicians by 2034, including shortfalls in both primary and specialty care.

The blows sustained by global education from the pandemic were no less formidable. These affected first and foremost the youngest generation of the globe – according to UNESCO, “more than 1.5 billion students and youth across the planet are or have been affected by school and university closures due to the COVID-19 pandemic”. On top of the adverse effects on the younger generation (see Box 1), there is also the widening “teachers gap”, namely a worldwide shortage of well-trained teachers. According to the UNESCO Institute for Statistics (UIS), “69 million teachers must be recruited to achieve universal primary and secondary education by 2030”.

From our partner RIAC

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Economy

Accelerating COVID-19 Vaccine Uptake to Boost Malawi’s Economic Recovery

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Lunzu market in southern Malawi. WFP/Greg Barrow

Since the onset of the COVID-19 pandemic, many countries including Malawi have struggled to mitigate its impact amid limited fiscal support and fragile health systems. The pandemic has plunged the continent into its first recession in over 25 years, and vulnerable groups such as the poor, informal sector workers, women, and youth, suffer disproportionately from reduced opportunities and unequal access to social safety nets.

Fast-tracking COVID-19 vaccine acquisition—alongside widespread testing, improved treatment, and strong health systems—are critical to protecting lives and stimulating economic recovery. In support of the African Union’s (AU) target to vaccinate 60 percent of the continent’s population by 2022, the World Bank and the AU announced a partnership to assist the Africa Vaccine Acquisition Task Team (AVATT) initiative with resources, allowing countries to purchase and deploy vaccines for up to 400 million Africans. This extraordinary effort complements COVAX and comes at a time of rising cases in the region.

I am convinced that unless every country in the world has fair, broad, and fast access to effective and safe COVID-19 vaccines, we will not stem the spread of the pandemic and set the global economy on track for a steady and inclusive recovery. The World Bank has taken unprecedented steps to ramp up financing for Malawi, and every country in Africa, to empower them with the resources to implement successful vaccination campaigns and compensate for income losses, food price increases, and service delivery disruptions.

In line with Malawi’s COVID-19 National Response and Preparedness Plan which aims to vaccinate 60 percent of the population, the World Bank approved $30 million in additional financing for the acquisition and deployment of safe and effective COVID-19 vaccines. This financing comes as a boost to Malawi’s COVID-19 Emergency Response and Health Systems Preparedness project, bringing World Bank contributions in this sector up to $37 million.

Malawi’s decision to purchase 1.8 million doses of Johnson and Johnson vaccines through the AU/African Vaccine Acquisition Trust (AVAT) with World Bank financing is a welcome development and will enable Malawi to secure additional vaccines to meet its vaccination target.

However, Malawi’s vaccination campaign has encountered challenges driven by concerns regarding safety, efficacy, religious and cultural beliefs. These concerns, combined with abundant misinformation, are fueling widespread vaccine hesitancy despite the pandemic’s impact on the health and welfare of billions of people.  The low uptake of COVID-19 vaccines is of great concern, and it remains an uphill battle to reach the target of 60 percent by the end of 2023 from the current 2.2 percent.

Government leadership remains fundamental as the country continues to address vaccine hesitancy by consistently communicating the benefits of the vaccine, releasing COVID data, and engaging communities to help them understand how this impacts them.

As we deploy targeted resources to address COVID-19, we are also working to ensure that these investments support a robust, sustainable and resilient recovery. Our support emphasizes transparency, social protection, poverty alleviation, and policy-based financing to make sure that COVID assistance gets to the people who have been hit the hardest.

For example, the Financial Inclusion and Entrepreneurship Scaling Project (FInES) in Malawi is supporting micro, small, and medium enterprises by providing them with $47 million in affordable credit through commercial banks and microfinance institutions. Eight months into implementation, approximately $8.4 million (MK6.9 billion) has been made available through three commercial banks on better terms and interest rates. Additionally, nearly 200,000 urban households have received cash transfers and urban poor now have more affordable access to water to promote COVID-19 prevention.

Furthermore, domestic mobilization of resources for the COVID-19 response are vital to ensuring the security of supply of health sector commodities needed to administer vaccinations and sustain ongoing measures. Likewise, regional approaches fostering cross-border collaboration are just as imperative as in-country efforts to prevent the spread of the virus. United Nations (UN) partners in Malawi have been instrumental in convening regional stakeholders and supporting vaccine deployment.

Taking broad, fast action to help countries like Malawi during this unprecedented crisis will save lives and prevent more people falling into poverty. We thank Malawi for their decisive action and will continue to support the country and its people to build a resilient and inclusive recovery.

This op-ed first appeared in The Nation, via World Bank

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Economy

An Airplane Dilemma: Convenience Versus Environment

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Mr. President:  There are many consequences of COVID-19 that have changed the existing landscape due to the cumulative effects of personal behavior.  For example, the decline in the use of automobiles has been to the benefit of the environment.  A landmark study published by Nature in May 2020 confirmed a 17 percent drop in daily CO2 emissions but with the expectation that the number will bounce back as human activity returns to normal.

Yet there is hope.  We are all creatures of habit and having tried teleconferences, we are less likely to take the trouble to hop on a plane for a personal meeting, wasting time and effort.  Such is also the belief of aircraft operators.  Add to this the convenience of shopping from home and having the stuff delivered to your door and one can guess what is happening.

In short, the need for passenger planes has diminished while cargo operators face increased demand.  Fewer passenger planes also means a reduction in belly cargo capacity worsening the situation.  All of which has led to a new business with new jobs — converting passenger aircraft for cargo use.  It is not as simple as it might seem, and not just a matter of removing seats, for all unnecessary items must be removed for cargo use. They take up cargo weight and if not removed waste fuel.

After the seats and interior fittings have been removed, the cabin floor has to be strengthened.  The side windows are plugged and smoothed out.  A cargo door is cut out and the existing emergency doors are deactivated and sealed.  Also a new crew entry door has to be cut-out and installed. 

A new in-cabin cargo barrier with a sliding access door is put in, allowing best use of cargo and cockpit space and a merged carrier and crew space.  A new crew lavatory together with replacement water and waste systems replace the old, which supplied the original passenger area and are no longer needed.

The cockpit gets upgrades which include a simplified air distribution system and revised hydraulics.  At the end of it all, we have a cargo jet.  If the airlines are converting their planes, then they must believe not all the travelers will be returning after the covid crisis recedes.

Airline losses have been extraordinary.  Figures sourced from the World Bank and the International Civil Aviation Organization reveal air carriers lost $370 billion in revenues.  This includes $120 billion in the Asia-Pacific region, $100 billion in Europe and $88 billion in North America.

For many of the airlines, it is now a new business model transforming its fleet for cargo demand and launching new cargo routes.  The latter also requires obtaining regulatory approvals.

A promising development for the future is sustainable aviation fuel (SAP).  Developed by the Air France KLM Martinair consortium it reduces CO2 emissions, and cleaner air transport contributes to lessening global warming.

It is a good start since airplanes are major transportation culprits increasing air pollution and radiative forcing.  The latter being the heat reflected back to earth when it is greater than the heat radiated from the earth.  All of which should incline the environmentally conscious to avoid airplane travel — buses and trains pollute less and might be a preferred alternative for domestic travel.

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