China Faces an Opportunity to Transition to a New Wave of Prosperity

The ingredients that propelled China's rapid expansion and unprecedented development over the past 30 years won't fuel its expansion over the next three decades, according to Deloitte Touche Tohmatsu Limited's "Competitiveness: Catching the Next Wave in China" report.

Instead, China faces an opportunity to transition to a new wave of prosperity.

In order to move up the "value chain," China must evolve from relatively commoditized manufacturing and lower-skilled assembly to a more innovation-based economy, which includes design, logistics, financial and business services, high-tech industries and life sciences, says the report.

"There is no question that China's economic transformation over the last three decades has been remarkable," says Gary Coleman, Deloitte Global Managing Director for Industries. "To grow to even greater heights, China today must embrace new sectors and strategies for growth, as well as build a culture of innovation, in order to maintain its comparative advantage."

The report maintains that in order to thrive amidst today's global economic challenges, China must transition from labor- and capital-intensive activities to those that utilize knowledge, innovation, design, IT sciences, software, and marketing.

The sectors driving China's "next wave" of growth should focus on more specialized and innovative production, says Deloitte.

Currently a small percentage of the nation's manufacturing industry, aerospace has been identified as a high-priority sector in China's growth plans.

Developing a viable aircraft industry will test Chinese firms' ability to penetrate a space clearly dominated by the United States.

With government support, China could very well become a significant player in the aviation sector.

In the high-value machinery and components arena, China is likely to become a regional hub for machinery production. Similarly, a shift in electronics components has caused a rapid increase in trade of higher-tech products and components.

Meanwhile, the domestic market for drugs and medical devices is rapidly expanding within the Chinese life sciences industry. With government support and rising investments from foreign pharmaceutical firms into research & development, China is positioned to become an important—and potentially disruptive—player by 2025.

Mobile technology

Mobile technology will also be a source of China's growth. Now the world's largest consumer of mobile phones, Chinese subscribers grew from 7 percent in 2000 to nearly 90 percent in 2013.

Chinese innovation in mobile gaming, communications, e-commerce, and shopping software and services holds enormous potential to boost the nation's competitiveness and spur new mobile-specific industries.

Another driver of growth is Internet e-tailing and social media. Online sales in China accounted for approximately 6 percent of all retail purchases in 2012 worldwide– higher than in the United States.

The expansion of e-commerce sites into other business sectors, such as financial services, paves the way for additional growth opportunities within China's economy.

Logistics and other services

Shifting to innovative and specialized manufacturing creates opportunities for companies to capture new value in the aftermarket for goods after production.

Adding cloud computing and data analytics to business practices has tremendous potential to propel the distribution sector to one of the fasting- growing industries over the next two decades.

As China's population begins to age and cultural standards evolve, the government continues to expand its investment in healthcare.

Construction of urban hospitals and rural clinics, along with an increase in state-funded healthcare delivery, could contribute to expenditures of US$1 trillion by 2020, or equivalent to nearly 7 percent of GDP.

China is also expected to make waves in the education sector.

With an annual government investment in education of about US$250 billion, boosting the quality of the education system has become a top government priority in the transition toward a more services-based economy.

Despite companies opening private universities for their employees, expanding access to education is still a critical factor in China's economic development.

Finally, energy is also expected to be among the cornerstones of growth.

China's rapid growth and development has created a demand for more innovative and environmentally-friendly energy policies. This demand is creating opportunities for China to address growing ambient air pollution and greenhouse gas emissions while fueling economic growth.

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