The first of a series of articles on China and the Asian market ahead of the China Leasing Summit to be held in Beijing on 2013
China is one of the world’s fastest-growing economies, with real annual gross GDP growth averaging nearly 10% through 2011 and only marginally less in 2012.
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It is currently the world’s second-largest economy, largest merchandise exporter, second-largest merchandise importer, second-largest destination of foreign direct investment (FDI), largest manufacturer, largest holder of foreign exchange reserves, and largest creditor nation.
Some economic forecasters project China will overtake the US as the world’s largest economy within a few years, although US per capita GDP levels are expected to remain much larger for many years. It’s difficult to see, therefore, why the equipment leasing industry wouldn’t be keen to learn how it can participate in such a growing market.
There is a realisation banks currently have little opportunity to expand their activities with the constraints imposed by delivering on Basel III. Nevertheless manufacturers, as well as some banks, have started to open leasing and finance subsidiaries in the Chinese market and have been the most successful entrants of recent years
In response to the global economic crisis of 2008, which greatly affected China’s economy, the Chinese government implemented a $586bn economic stimulus package, loosened monetary policies to increase bank lending, and provided various incentives to boost domestic consumption. Such policies enabled China to weather effectively the effects of the sharp global fall in demand for Chinese products, while several of the world’s leading economies experienced negative or stagnant economic growth.
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By GlobalDataChina’s economic rise has significant implications for the rest of the world, especially Europe. It is also being given a lot of attention by Australia which sees much of its medium-term future tied into the supply of raw materials to China in addition to oil and gas supplies. The Asian market, particularly China, is underwriting Australian growth.
However, China’s ability to maintain a rapidly growing economy in the long run depends largely on its government ability to implement comprehensive economic reforms to transition hastily to a free market economy.
There’s a need to rebalance the Chinese economy by building consumer demand, rather than exporting and fixed investment, as the main engine of economic growth, and boosting productivity and innovation. China faces numerous other challenges which could affect its future economic growth, such as widespread pollution, growing income disparities, an undeveloped social safety net, and extensive involvement of the state in the economy.
The Chinese government has acknowledged its current economic growth model needs to be altered and in October 2006, formally outlined a goal of building a "harmonious socialist society" by taking steps (by 2020) to address many of these challenges.
As part of its economic development, we should also expect China to support its major equipment manufacturers in the sale of their goods to Europe, the US and South America by establishing leasing and asset finance support, either through captive finance companies or investment in established providers.
Derek Soper is chairman of IAA-Advisory and a director and governor at The Leasing Foundation.
