According to ICAEW’s Economic Insight: Greater China report, China may marginally miss its growth targets this year, entering a phase of consolidation. To propel the important high-tech manufacturing sector, improvements to education and ICT are needed.

 

Economic Insights: Greater China is a quarterly report produced by Cebr (Centre for Economics and Business Research) for ICAEW, providing an economic snapshot of the economy in mainland China and the Hong Kong and Macau Special Administrative Regions (SARs).

 

Doug McWilliams, Executive Chairman of Cebr and ICAEW Economic Adviser, said: “Slowing growth in the Chinese economy has been talked about a lot and 2014 is likely to be the year we see growth missing the official target but it won’t be by much (official target is 7.5%, Cebr forecast is 7.3%). The chances of a hard landing are very low and not something we should be too worried about.

 

“China has picked all the low hanging fruits so progress from now will inevitably be harder. However in the next 15 years, we expect China to top the world economic league.”

 

China has benefitted from opening its markets to global economics, helping the SARs act as gateways to the mainland. The country has already, to an extent, moved on from the export of labour-intensive manufactured goods to high-skill and high-tech goods account – which currently counts for 41% of manufactured goods exports – and is more than in the Eurozone. However, the economy must now seek new sources of growth, focusing on high-value export industries.

 

Doug said: “China needs to develop more Mittelstand-like companies; specialists in producing components for high-tech manufacturing – and the industries using such parts.”

 

The report also suggests that China needs to work to move up the World Bank’s international Knowledge Index, where it currently ranks 59th of 144. While it scores high on innovation, its education and ICT scores are relatively low. Better innovation and education will also improve productivity, an area in which China is still lagging somewhat behind. Foreign Direct Investment (FDI) will help boosts all these areas and foreign businesses are attracted to the size of the Chinese market. However, regulation remains a challenge for companies wishing to establish themselves in China.

 

There is huge potential also for Chinese companies from FDI, as engagement with international companies helps transferring foreign skills and knowledge to the Chinese economy. To take full advantage of this opportunity, however, requires removal of some of the restrictions currently in place.

 

The full ICAEW Economic Insight: Greater China report can be downloaded from www.icaew.com/economicinsight.