Chances are if you are involved in the POP display industry either as a manufacturer, a purchaser, or a supplier to the industry, you are in a position to be impacted by China’s changing economy. We’ve been manufacturing in China for over 25 years and feel fortunate to have had a front row seat during the impressive ramp up of China’s economy.
During this bizarre election cycle, we’ve heard a lot of anti-China rhetoric coming out of the Trump camp. In addition, as a result of the labor issues that affected container shipments 2 years ago and the recent Hanjin Shipping bankruptcy, we witnessed an increasing hesitation on the part of some of our customers to have their displays manufactured overseas. Furthermore, reports of a looming real estate bubble and increased business and consumer indebtedness have fueled concerns about the risk of importing. To top it off, roundtrip airfares from Los Angeles to Hong Kong have dropped from over $1000 to as low as $434. So what’s going on?
There’s been a lot written about China’s economy, but we found one of the most concise and informative explanations in Michael Spence’s article entitled “China’s Rising Middle Class and Why a Slowing Chinese Economy Could be Good For China and the Rest of Us.” Former Dean of Stanford’s Graduate School of Business and 2001 Nobel Laureate in Economics, Spence is an expert in developing country economies and an advisor to the top planners and economists in Beijing.
In the article, Spence explains that in response to the drop in demand resulting from the financial crisis, China’s government opened the flood gates on credit and investment to keep the growth going. However, as China’s economy got larger, the growth rate became unsustainable. At the same time, rising wages and incomes have created a sizable middle class that is shifting the economy toward domestic consumption rather than exports only.
Spence argues that the slower growth is a good thing. There are a lot of interesting insights in his article, and if you are interested in where China is going and what risks lie ahead, it’s a great read.