Dr Andy Xie: China’s future depends on it getting its microeconomics right

Dr Andy Xie

In a recent opinion piece for the South China Morning Post, Dr Andy Xie shared why he believes that  business in China must change in order to prosper.

Here are some highlights:

Chinese consumers are generally in good financial shape. The turn away from pursuing property for speculation can only mean a huge improvement in household cashflows. Since 2021, households’ savings deposits have risen by 40.2 trillion yuan (US$5.5 trillion) while debt rose by a much slower 9.4 trillion yuan. In the preceding decade of 2011-2021, the rise in household debt was nearly 85 per cent of the rise in deposits.

Many economists see households deleveraging as bad for the economy. But when people stop financial speculation and start tidying up their balance sheets, it is a good thing. A healthier balance sheet will support more sustainable consumption growth. The boom in domestic tourism shows that, when the product is right and for a reasonable price, demand will come.

The change in Chinese household spending behaviour is an opportunity for businesses that can come up with the right products. China is no longer a bubbly market full of speculators willing to pay stupid money for overpriced products. Businesses need to change to prosper, and this will mean a healthier economy in the long run.

On the demand side, businesses need to cater to a more rational Chinese consumer. On the supply side, businesses must rise in the supply chain to add value and stave off competition with proprietary technologies and unique designs. Semiconductors, electric vehicles and renewable energy are sectors well on that path. Aeronautics and high-value-added ships are on the horizon.

China’s economic model had long been that of working for original equipment manufacturers, or OEMs. This led to a shortage of high-paying white-collar jobs. Tens of millions of graduates can’t find jobs that meet their expectations. But as China’s corporate sector climbs the global value chain to the top, Chinese white-collar workers will have the same opportunities as in other developed economies.

China’s economic future depends on upgrading at the microeconomic level. Its labour force isn’t expanding. Its infrastructure and cities have been built. It doesn’t need to pursue growth for the sake of it. Economic expansion is good only when it meets the higher expectations of the next generation in both consumption value and job quality.

Dr Andy XieDr Andy Xie 謝國忠is an independent economist, director of Rosetta Stone Advisors and is one of the few economists who has accurately predicted economic bubbles including the 1997 Asian Financial Crisis and the more recent subprime meltdown in the United States.

He was a part of Morgan Stanley in 1997 and the Managing Director and Head of the firm’s Asia/Pacific economics team until 2006. He also spent two years with Macquarie Bank in Singapore, an associate director in corporate finance and five years as an economist with the World Bank.

Dr. Xie earned a PhD in economics in 1990 and an MS in civil engineering in 1987 from the Massachusetts Institute of Technology.

Contact us today to engage Andy Xie to share his insights at your next conference.