![2016-07-21_-_Steady_Investor_News_-_China_Restructuring_-_image_1_of_3.png](\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2022\/02\/2016-07-21_-_Steady_Investor_News_-_China_Restructuring_-_image_1_of_3.png\")
Data source: World Bank<\/em><\/strong><\/p>\nWith all the capacity generated by China\u2019s investments in fixed assets, the nation would need a market for an additional output ranging between $5 trillion and $7 trillion (in constant 2009 prices) every year through 2020\u2014as suggested by a 2010 study. That\u2019s something which already saturated foreign demand alone is not likely to accomplish.<\/p>\n China to Turn \u2018Inward\u2019<\/strong><\/p>\n Notwithstanding China\u2019s citizen headcount exceeding 1 billion, its consumption expenditure share in GDP stood at only 35.9% in 2010 (versus America\u2019s nearly 309 million population\u2019s consumption contributing around 70% of its GDP). That, in addition to a sated foreign market, could have guided Chinese policymakers to turn \u2018inward\u2019\u2014as evident from China\u2019s 12th (2011-2015) and 13th (2016-2020) five-year plans\u2014and focus more on capturing their own domestic market to set the wheels in motion for longer-lasting growth.<\/p>\n With a goal to strengthen household purchasing power and improve quality of life, Chinese authorities have planned to improve service industries including health, education, finance, technological innovation, logistics\/transport and tourism. Additionally, focus will be put on equitable income and resource distribution as well as creating environmentally-friendly technologies.<\/p>\n It appears the restructuring is already gaining traction. In 2015, slowing industrial growth was accompanied by a strengthening services sector, with the latter growing at +8.3% (up from 2014\u2019s +7.8%). Services sector share rose to 50.5% from the preceding year\u2019s 48.1%, contributing to more than half of China\u2019s GDP for the first time (while Manufacturing share slid more than two percentage points to 40.5%).<\/p>\n Additionally, in 2014, China\u2019s domestic consumption growth accelerated to more than +9%, from the preceding year\u2019s +7.5%. The share of consumer spending increased 1.2 percentage points to reach 37.4% the same year.<\/p>\n Furthermore, the People\u2019s Bank of China\u2019s accommodative policies, such as a record-low lending rate of 4.35% since October and reserve-requirement reductions, have facilitated new loans of 1.38 trillion Yuan this June, beating estimates. Bank deposits and currency in circulation collectively soared +24.6% in June from a year ago, registering the biggest jump in six years.<\/p>\n China\u2019s Restructuring Reminiscent of America\u2019s Transition<\/strong><\/p>\n China\u2019s restructuring is reminiscent of America\u2019s economic history, although the two are separated by somewhat different sets of driving forces.<\/p>\n The industrial revolution in the U.S., whose first phase spanned the period of 1790 through the 1830s, marked the economy\u2019s transition from agricultural to industry. While China is teetering on overcapacity in manufacturing\/heavy industry at present, America was experiencing an abundance of land, far outstripping labor availability, which probably galvanized the nation to switch to machines from manual work for higher productivity. The revolution set the stage for the \u201cfactory system\u201d characterized by mass output production from centralized locations, akin to China\u2019s manufacturing success story.<\/p>\n In the post-World War II period, industrial output growth in the U.S. was fast outpacing demand. On the other hand, the higher productivity had already translated into higher wage rates and profits, meaning American consumers had more purchasing power for services. So, to adjust to the situation, employment shifted from the industrial sector to services. Later on, in the late-1970s and \u201880s, Japan and, subsequently, China emerged as strong global competitors to American manufacturing, driving the U.S. further toward a services and consumption-oriented economy. China\u2019s restructuring, however, has less to do with foreign competition than saturated foreign demand for its manufactured products; a largely untapped domestic market only adds to the impetus behind the changeover.<\/p>\n Bottom Line for Investors<\/strong><\/p>\n China\u2019s reshuffling of economic objectives constitutes a paradigm shift from its decades-old growth engine. And, therefore, it could face some temporary hiccups, such as slackening growth in the initial years of the restructuring process. Nevertheless, these steps are necessary to rein in the Chinese economy\u2019s \u2018over-dependence\u2019 on external markets and to become more self-sufficient to mitigate vulnerabilities from external shocks.<\/p>\n Should the nation successfully achieve the restructuring objectives, China could emerge as the next economic superpower, capitalizing on its burgeoning urban populace.<\/p>\n \n","protected":false},"excerpt":{"rendered":" At a quick glance, China\u2019s economic growth is decelerating. However, this may just be a temporary \u201cside-effect\u201d of the nation\u2019s […]<\/p>\n","protected":false},"author":1,"featured_media":4124,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[71,72],"tags":[],"class_list":["post-3366","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-private-client-group","category-steady-investor-news"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/3366","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=3366"}],"version-history":[{"count":1,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/3366\/revisions"}],"predecessor-version":[{"id":11271,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/3366\/revisions\/11271"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=3366"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=3366"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=3366"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}![2016-07-21_-_Steady_Investor_News_-_China_Restructuring_-_image_2_of_3.png](\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2022\/02\/2016-07-21_-_Steady_Investor_News_-_China_Restructuring_-_image_2_of_3.png\")
Data source: World Bank<\/em><\/strong><\/p>\n![2016-07-21_-_Steady_Investor_News_-_China_Restructuring_-_image_3_of_3.png](\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2022\/02\/2016-07-21_-_Steady_Investor_News_-_China_Restructuring_-_image_3_of_3.png\")
Data source: World Bank<\/em><\/strong><\/p>\n