22 January 2016 | By Ben Digby Insight

Taking the bite out of China concerns

Insight: Ben Digby, head of international, CBI

When 60 per cent of the world's apples come from China, it's clear the country is still delivering some impressive numbers. 

Flying out to China recently, I came across a startling fact in a report on the Chinese economy: 60 per cent of the world’s apple juice comes from Chinese apples. I grabbed the pressed juice in front of me to look for confirmation. I didn’t find it immediately on the label, but after a bit more digging I later discovered that China produces 37 million tonnes of apples annually. In second place? The United States, with a comparatively meagre 4 million tonnes.

But the numbers we’ve been hearing about China since the turn of the year are rather less positive.

Weak economic data have helped fuel repeated falls in the Chinese stock market and developments in China continue to have repercussions globally. As the IMF commented in its World Economic Outlook report on Tuesday, "Three key transitions continue to influence the global outlook: (1) the gradual slowdown and rebalancing of economic activity in China away from investment and manufacturing toward consumption and services, (2) lower prices for energy and other commodities, and (3) a gradual tightening in monetary policy in the United States.”

However, the same report also rightly pointed out that “overall growth in China is evolving broadly as envisaged” – an important point that is often overlooked.

Indeed, as the leaders of business and government gather in their snowboots in Davos this week, they may recall that Chinese Premier Li Keqiang talked this time last year about China's "new normal" of medium-high growth. He pointed out that 7 per cent growth now would produce an annual increase to GDP of more than $800bn, greater than a 10 per cent increase in 2010. As our chief economist Rain Newton-Smith has commented before, this is the equivalent of adding an economy the size of Belgium to your GDP every year, which is not too shabby.

Playing to the trends

That's not to dismiss that there are downside risks to the Chinese economy. High debt levels, factory overcapacity, slowing investment and a weakening property market are all concerns. And, of course, there are question marks over the reliability of the GDP data itself.

But as China transitions to a growth model driven more by consumption and services than investment and manufacturing, it brings opportunities as well as challenges. Or as Premier Li put it in the same "new normal" speech at Davos: "When the wind of change blows, some build walls, while others build windmills".

I saw a number of British "windmills" in November 2014 in Beijing, Shanghai and Guangzhou and subsequently in trips around China since. In March this year, Aga Rangemaster started selling cookers to Chinese consumers hungry to have a piece of Brand Britain in their homes. It’s tapping in China's burgeoning urban middle class that the China-Britain Business Council has rightly identified as a huge opportunity for British consumer brands in its recent report.

Marks & Spencer, present in China for seven years, opened its first store in Beijing and has started trading online through Alibaba, taking advantage of the huge e-commerce market.

And 2016 is set to be a landmark year for British creative industries with a series of events and trade missions taking place as part of the "Shakespeare Lives" campaign, marking the 400th anniversary of Shakespeare's death.

This all follows President Xi Jinping's state visit to the UK in October where both governments referred to UK-China relations entering a "golden age". As our China team heard at an event organised by the British Embassy in Beijing earlier this week, by 2020 the UK government is aiming for £60bn of exports to China, up from £20.1bn in 2014 (latest available figures).

So as the debate continues about the ups and downs of the Chinese economy – and it will – it’s worth remembering to look beyond the headlines. You might just be surprised.