China is changing rather than failing. Overall domestic consumption is growing and the service sector is growing rapidly. It is entirely normal for the growth rates of any country to slow as it develops – and China has grown very quickly in recent years based on an export orientated strategy. It is now getting to grips with a necessary painful adjustment to broader channels of growth. The volatility caused by China’s changing relationship with the world is understandable and manageable, but only by building the right type of global partnerships.
China accounts for a quarter of the world’s economic growth and is currently managing an economic transition and looking for new types of business partnerships. The country itself is set to grow more based on services and new sectors. This means dealing with surplus industrial capacity, helping workers transition to new service industry jobs – and crucially, communicating and partnering in a different way with global partners.
Inside China things are also changing. The trend towards closer collaboration and integrated problem solving is also helping overcome domestic challenges. Despite a positive overall picture across the Chinese service sector, for many policy makers the domestic property market has become the next challenge to sort out. New joint ventures and partnerships are forming to negotiate with governments and business partners. Despite property prices bouncing back in the biggest cities such as Beijing and Shanghai, the high cost of land is making life difficult for developers. In some large cities the price of land has increased over 10% since this time last year and many developers are looking at new ways of working together to stay ahead of the game. By circumnavigating the public market and forming joint ventures, bidding power at government auctions is dramatically improving chances of securing building plots. The majority of China’s biggest land sales are now bought through partnerships and this trend has increased steadily since 2014.
With this squeeze on profit margins set to continue, the ability to partner effectively is becoming the most important survival factor in the Chinese property market. The ability to integrate with big developers, state governments and also collaborate with provincial governments necessitates an agility that is perhaps less important than five or 10 years ago.
China is changing the way it partners. It is no longer just about channelling benefits back to China. A key example is the way China is nurturing and expanding its interests across Africa. The world’s second largest economy is moving towards a new type of partnership with Africa – as both parties increasingly require critical components from the other. China needs energy and resources from a huge developing power like Africa as well as access to new growing markets. In return, Africa demands more than just capital investment. Africa requires access to technology infrastructure, problem solving expertise and a long term commitment to help manage large projects that stimulate jobs and local businesses. Huge Chinese funded infrastructure projects in countries even without significant foreign debt like Algeria are signalling a new and better way of problem solving.
Ongoing China to Africa investment
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The example of Algeria highlights nations and partners looking beyond a singular deal to build sustainable long term economic growth. The recent announcement of several infrastructure projects, including a new US$3.2 billion port in Cherchell, heralds the first time Algeria has actively looked for foreign funding in over a decade. Chinese businesses are already well-established in Algeria, especially in housing and construction, and in one flagship project, Chinese firms are helping to build a huge new mosque worth US$5 billion in the capital Algiers. Now Chinese banks will fund the port in Cherchell, east of Algiers. This mega-port of 23 docks will be capable of processing 26 million tonnes of goods per year, according to a source at the transport ministry. The port will be funded by China with China’s Shanghai Ports Group managing the day to day project.
This project also presents a marked difference between the type of partnering required now as opposed to 10 years ago. In 1994, Algeria signed a debt restructuring deal with the IMF, but the terms and tone of the relationship made life unmanageable domestically. Countries like this are rightly sensitive to what a genuinely collaborative problem solving partnership needs to feel like. The demand is for partnership and mutual growth as opposed to imposition and bail-out.
Imposition and bail-out versus partnership and growth. The Algerian example of a new approach to partnership.
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