The Chinese economy is slowing. The days of rampant, double-digit expansion are in the past as we move away from massive investment and export dependency towards a more sustainable, consumption-driven model of growth. This rebalancing offers both challenges and opportunities for dynamic organisations. How these businesses adapt to the changing environment will be key to their growth prospects.
I was therefore delighted to see how our economy performed in the Global Dynamism Index (GDI) 2013, which measures the improvements in business growth environments over the past 12 months. China ranks 3 this year, behind only Australia and Chile of the 60 economies researched. Our economy climbed 17 places from 2012. Only the Philippines (46 to 21) rose faster. Clearly, how well our economy is supporting the ambitions of dynamic businesses is improving. And fast.
So what has driven the rise?
Improvements in science & technology are most notable. Increases in R&D and IT spending growth saw the economy climb eight places to rank 14 overall in this category of dynamism. Such factors expand economic growth potential by boosting the quality, productivity and efficiency of inputs. That China climbed to rank 1 in labour & human capital on the back of labour productivity growth of 7.4% is evidence of this.
China maintains its rank of 2 in economics & growth, behind only Venezuela where the pre-election largesse of Hugo Chavez provided a one-off boost to his economy, but there is certainly room for improvement in the remaining two categories of dynamism.
Our economy ranks 48 in business operating environment, down from 43 last year, scoring low in the bottom half of the index on all indicators such as policy towards private enterprise and regulatory risk. We rank slightly higher for financing environment (36), and recent efforts by the central bank to tidy up so-called ‘shadow banking’ practices and end restrictions on lending rates – which should help boost lending to SMEs in the privates sector – indicate the progress being made.
So all-in-all, very positive results, especially when compared with the other BRIC economies. The highest of these, Brazil, ranks 42 overall and none rank in the top ten in any category.
China is not only developing fast. It is pulling away.
Xu Hua is Managing partner of Grant Thornton China.