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China’s Goals & Key Challenges – and the opportunities they generate!

China’s Goals & Key Challenges – and the opportunities they generate!
February 2018

This is not new, or news. However, understanding the critical importance of growth for China means that, unless a financial crisis or a geo-political confrontation arises, growth will continue to happen. China will continue to generate upwards of 10 million urban jobs a year[2], even though this will certainly also translate into lower growth rates (in percentage), year by year.

The Compact with China is also the very reason why a financial crisis is very unlikely to happen. While the Chinese are able to sustain enormous hardship inflicted by outside circumstances, an economic crisis due to a failure of financial or other internal systems would create the very situation in which the government will lose its mandate.

That does not mean that China is immune to economic reality, but that ensures that the government pays considerable attention to the risks it is taking and makes sure to control them, before they materialize.

As a matter of fact, the likelihood of a financial crisis is quite low, first because all the new debt that is generated is essentially financed from the Chinese population’s savings, but also because most of it is absorbed by state owned companies that are under government control and will not be allowed to fail. In other words, the government controls both ends of the debt: the lenders’ savings in government owned banks and the recipients of the loans, which are state-owned companies for 67% of the debt.

Still the challenges faced by the leadership are also encouraging it to increase the financial system’s professionalism and efficiency. As a result key limitations on foreign ownership of financial institutions in China are widely expected to be lifted, following the official announcement of November last year[3]. This will no doubt offer many additional opportunities to the international financial business community.

In addition, a comprehensive set of measures have been taken last year to control debt risks effectively[4].

Nevertheless, bolstering the financial system cannot compensate upgrading the real economy for long.

China’s growth model of is changing – will the Middle Kingdom eventually become a tech innovator?

In the mid to long term, growth will need to happen through productivity improvement. That is making and selling more value-adding products and services. Additionally, Chinese people need to invest directly, so that money continues to flow into the economy, yet without being borrowed from the population’s savings and, as a result, without increasing debt.

The answer to this challenge is smart and simple: turn the Chinese economy into an innovation economy and to do so, let hundreds of thousands of entrepreneurs create new innovative enterprises.

[2] More than 13 million jobs were created in 2015, 2016 and 2017, each.
[3] China makes historic move to open market for financial firms (Bloomberg, 10 Nov 2017)
[4] This is well explained in the following article:

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