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2014, China at a Turning Point

2014, China at a Turning Point
January 2014

Can we Hope for the Best?

Dear Friends, Partners and Readers,

2013 has been an eventful and challenging year all over the world, but particularly so in China. What should we make out of it and what should we expect for the future?

The change of leadership to President Xi Jinping, Premier Li Keqiang and their team was not as smooth as it was planned by party elders.
In defiance of traditional political practices, Bo Xilai competed for a position in the inner-circles of the Chinese leadership sparking the most important post-Mao political crisis.
All the while, it became clear to ordinary citizens that their leaders were involved in allowing the enrichment of their allies and families to levels rivaling those of China’s wealthiest entrepreneurs.

Worse, the Chinese people realized that the peddling of political influence was not only unfair but that it additionally threatens their daily lives. Collapsed bridges, train collisions, food scandals, and pollution levels have all increased considerably in the last few years, pointing to growing mismanagement by government officials.

Over the course of 18 months, from 2011 to 2012, eight bridges collapsed; corruption was attributed as the most likely cause of these incidents. In the week of 7 October 2013 alone, 59 people were sentenced to jail terms, some for life, as a result of 4 different food scandals. The week of 21 October, saw the concentration of particles of 2.5 micron and smaller (one key measure of pollution) soar to a record 40 times higher than international safety standards set by the World Health Organization in Harbin, a provincial capital of 11 million.
On November 5th, the story of an 8 year old Chinese girl diagnosed by her doctor with lung cancer because of air pollution, went viral on the internet.

Meanwhile, a scientific study concluded that the average life expectancy of Chinese in large parts of North China is reduced by 5 years, due to the heavy use of coal for heating.
In its most moderate form, this has led to a growing sense of disenfranchisement amongst large segments of the Chinese population, manifesting itself at worst, in the form of cynicism or outright anger towards the leadership, regularly vented over the internet.

Meanwhile, on the economic front, investment has become increasingly prominent as a share of China’s GDP. From 2000 to 2012, consumption went down from 46% of GDP to 33%; about half of what it is in Western economies. (By comparison, in the USA and Switzerland, private consumption share of GDP is slightly under 60% and 70%, respectively.)
Below is the historical composition of GDP as well as the projection until 2030 forecasted by McKinsey.

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