Professor Kerry Brown is the Director of the China Studies Centre at the University of Sydney. At our October 2015 Expat Advisors Community forum, Kerry shared with the attendee’s the rich history of Chinese politics and provided an overview of the components of the Communist party, which currently has around 86 million members.
Whilst 47% of the Chinese population are in farming, there is increasing migration into the cities, with entrepreneurship and rapid growth in the urban middle class.
In terms of financial aspects, some key insights included:
- China’s Tax system – collection of taxes continues to be an issue. Around 50% of revenue comes from State Owned Enterprises (SOE’s) who’s profit margins are just 6%. The other major contributor is state tobacco taxes, while personal taxes paid are only around 10-15% of total government revenue compared to 60-70% in western markets.
- High savings rate – lack of trust in social welfare has resulted in the highest savings rate of the world, with the need to set funds aside for a rainy day. This translates into much lower levels of consumption, around one third of GDP vs. around 50% globally, although it is quite high in Shanghai.
- Property prices – Shanghai property is out of reach for many, with more children continuing to live with their parents into their 30’s, even after marriage. Despite internal migration of 500,000 people a year, many of the residential towers remain empty.
- Investment options – property is a major focus, but the number per individual is capped, hence the interest in offshore property markets. Bank accounts offer very low yields and there is increasing volatility in the local share market. Whist there are around 33 million active share trading accounts, there is a lack of good quality companies to purchase, and individual trading style may be more akin to gambling, with high frequency trading.
So what can we do?
Increasing the levels of consumption verses savings is the key challenge, which to date has been driven by the growing middle class. There is considerable interest in products from countries such as the US, UK and Australia, however these companies are under-represented in China. Trust is low for luxury goods made in China verses those available in say Hong Kong and Europe.
From a financial services perspective, there are also opportunities to export our capabilities as articulated by John Brogden, then Chair of the Financial Services Council at our April 2014 forum. However there is still a long way to go in terms of an adequate retirement benefits system, health care for the aging population, and the evolution of financial markets services.
For those interested in Chinese politics and the potential growth in Shanghai, check out Kerry Browns books including `The New Emperors: Power and the Princelings in China’ and `Shanghai 2020: The City’s Vision for Its Future’. His new book ‘Xi Jinping: China’s CEO’ will be published in late 2015.
For regular updates and commentary, head to Kerry’s website where you will find various social media links: http://www.kerry-brown.co.uk/