THE CHINA SEVEN: The Huge Megatrends That Will Define China's Next Decade
Megatrend 1: China is entering a new demographic phase.
DEMOGRAPHICS: Its "demographic dividend" will end as its working-age population falls.
Source: Jefferies China 2025: A Clear Path to Prosperity
DEMOGRAPHICS: As a result, China will end its one-child policy.
Source: Jefferies China 2025: A Clear Path to Prosperity
DEMOGRAPHICS: By 2025, two-thirds of China's citizens will live in cities.
Source: Jefferies China 2025: A Clear Path to Prosperity
Megatrend 2: China's ravenous consumption will slow.
Source: Jefferies China 2025: A Clear Path to Prosperity
CONSUMPTION: Rapid consumer expansion will halt for most sectors as China's economy matures.
Source: Jefferies China 2025: A Clear Path to Prosperity
CONSUMPTION: However, consumption for luxury goods will stay strong.
Source: Jefferies China 2025: A Clear Path to Prosperity
CONSUMPTION: Northwestern regions will see much faster growth due to quick urbanization and large-scale exploration of mining resources.
Source: Jefferies China 2025: A Clear Path to Prosperity
Megatrend 4: China's trade surplus will disappear.
Source: Jefferies China 2025: A Clear Path to Prosperity
TRADE: By 2023, China will actually see a trade deficit as its exports become less cost-competitive.
Source: Jefferies China 2025: A Clear Path to Prosperity
TRADE: Its lack of globally recognized brands will cap China's share of global exports at 10 percent.
Source: Jefferies China 2025: A Clear Path to Prosperity
TRADE: China will almost certainly become more reliant on oil imports as travel increases.
Source: Jefferies China 2025: A Clear Path to Prosperity
INVESTMENT: Fixed asset investment will slow.
Source: Jefferies China 2025: A Clear Path to Prosperity
INVESTMENT: The government already has difficulty identifying worthy new infrastructure mega projects.
Source: Jefferies China 2025: A Clear Path to Prosperity
INVESTMENT: In manufacturing, falling corporate profits and cash flows have put a drag on capex growth.
Source: Jefferies China 2025: A Clear Path to Prosperity
INVESTMENT: All told, investment growth will fall to 6.6 percent per year during 2011-15, down from the 13.3 percent it was during 2001-2010. For 2021-25, investment growth will be just 4.8 percent per year.
Source: Jefferies China 2025: A Clear Path to Prosperity
Megatrend 5: China's maturing economy will force financial reforms.
Source: Jefferies China 2025: A Clear Path to Prosperity
FINANCE: Interest rates will be fully liberalized and market-based.
Source: Jefferies China 2025: A Clear Path to Prosperity
FINANCE: But exchange rates will remain partially controlled.
Source: Jefferies China 2025: A Clear Path to Prosperity
FINANCE: Capital markets — via banks, brokers and insurers — will play a more significant role in financing China's economy.
Source: Jefferies China 2025: A Clear Path to Prosperity
FINANCE: The offshore renminbi pool is likely to be significantly larger, especially in key global financial centers like London.
Source: Jefferies China 2025: A Clear Path to Prosperity
FINANCE: There will also be new revenue streams as insurance, pensions and derivatives grow.
Source: Jefferies China 2025: A Clear Path to Prosperity
Megatrend 6: Chinese consumers will max out on mobile.
Source: Jefferies China 2025: A Clear Path to Prosperity
WIRED: By 2025, 82 percent of Chinese will be on the Internet, compared to about 75 percent of Americans.
Source: Jefferies China 2025: A Clear Path to Prosperity
WIRED: The majority (more than 90 percent) of Internet users will be mobile Internet users after 2014.
Source: Jefferies China 2025: A Clear Path to Prosperity
WIRED: The e-Commerce market will grow to RMB12trn or 17 percent of total retail sales by 2025.
Source: Jefferies China 2025: A Clear Path to Prosperity
WIRED: Online ad revenue will grow at a CAGR of 30 percent during 2011-2016 and 13 percent during 2016-2025.
Source: Jefferies China 2025: A Clear Path to Prosperity
Megatrend VII: The service economy is coming.
Source: Jefferies China 2025: A Clear Path to Prosperity
SERVICES: China will need to begin developing its own technology rather than importing innovation. But this will be a difficult and costly transition.
Source: Jefferies China 2025: A Clear Path to Prosperity
SERVICES: Authorities will move away from financial repression and liberalize returns on domestic deposits.
Source: Jefferies China 2025: A Clear Path to Prosperity
China in 2025
"We forecast China’s GDP to reach ~US$18bn (6.9% CAGR) by 2025, almost equal to the US at that time. Firmly in the upper middle income range, we expect GDP/capita to reach US$9,750 (~US$18,000 PPP). The economic mix will improve significantly: we project final consumption to reach 73% of GDP, up from 49% in 2012. We expect household consumption to become the dominant growth driver, with government consumption playing “catch up.” Traditional drivers, such as exports and FAI, will become ever less relevant as China rebalances."
Source: Jefferies China 2025: A Clear Path to Prosperity
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