Eager eyes have been on the Chinese economy in the past couple of months, with a slowdown in growth which reverberated globally. More recently, the shadow chancellor, George Osborne, has been visiting the country with hopes to strike up a relationship to create a “golden era of co-operation”.
Dr. Ning Gao, senior lecturer in finance at Alliance Manchester Business School, provides insight into China’s economy and its relationship with the UK:
China’s previous economic growth was unpinned by so called demographic dividend – a period where the percentage of working-age population was at a high level. This was alongside the low living standard (thus low living cost) of the work force in China, which fuelled investment in the country.
Recent years have seen fundamental changes to labour cost and global investment. There is an aging population and a low birth rate paired with a wealthier population, which has inevitably pushed wages up. This has led to the slowdown of economic growth we have seen in China.
With the new outlook for the Chinese economy, consumer demand will replace investment as a main driver of growth – the wealthier population will be saving less and consuming more, boosting growth. This growth, however, will rely on innovation and the upgrading of sectors and infrastructure.
This can bring benefits to the UK and China. As Mr. Osborne has noted, the increased investment in innovation can bring an answer to the UK’s need for supply within projects like the high speed rail, HS2. Through building this relationship, UK trade can take advantage of China’s expertise and innovation.
As the Chinese population get wealthier and industries upgrade, more demand will emerge for services within sectors like pharmaceutical and finance. The UK harnesses expertise in the service sector, and so there is a promising opportunity for the UK, despite UK trade lagging behind countries in terms of the effort exporting to China. The relationship between the UK and China may well be entering – as George Osborne says – a “golden era”.