The Flying Pigeon isn’t a bird. It’s the heavy black, indestructible bicycle that used to typify China. Pushed, pulled or ridden, welded into giant tricycles to move improbable loads, in the past 10 years they seem to have evaporated like the dinosaurs after the meteor hit.
The disappearance of the Pigeon is a metaphor for what’s happening in China. The bike is gone, replaced by Giant branded sports bikes, by electric scooters that whiz along the roads and footpaths with impunity and by cars. Millions and millions of cars.
Some 12 years ago when CoreData first started operating in China, it felt vast and wild and very odd. I felt every time that I went that I was definitely alien. We were like everyone else, part of the gold rush, attempting to establish a business in a new market, piggybacking on our clients’ needs for information about what consumers wanted and their lack of trust of the official Government statistics.
Then the Pudong, the building light show in the photo at the top of this article, was awash with cranes. I once met a client at the Hyatt there – then the tallest building – and walked with him around the restaurant on the 87th floor and counted 170 cranes at work. We gave up when we started looking into the distance and saw them stretching out as far as the eye could see.
The Pudong is finished now, transformed from a swamp into a city that could rival anything in Europe. It’s as if the industrial revolution in this part of China had taken place in a decade.
Now China is at a cross roads, poised on the edge of economic certainty – the tipping point of any economy where internal demand for goods and services reaches the point where the economy can effectively manufacture enough demand to sustain its tax base and therefore itself, or a slide back into a weak market economy – relying on low cost exports to drive any growth.
China’s fortune has been built on the back of being the world’s factory, providing cheap manufactured goods for a greedy western market. It also provided the savings to fund much of their economies as the Chinese local and main Government’s bloated with export income and domestic savings prowled the world looking for better returns.
Both of these ideas are worth considering – the dream of the middle class seems at least to be real. I’m in China at the moment working, meeting people and seeing where business is headed.
What is interesting and illuminating is how attuned everyone is to the economy in China. Everyone from the head of a giant Swiss insurance company, to the publisher of a High Net Worth Advice Magazine, to the market vendor who sold me my 11th copy watch, possess a smartphone and the smart phone tells them what the share market is doing, what the Yuan is doing and what the economy is doing and they are concerned, but only slightly.
Quite literally the guy who sold me my fake watch thought the refugee crisis in Europe would suppress economic demand, which would be bad for China and thought that the world had to do more.
“England is weak and France are weak,” he said. “Only Germany is strong” But he added cryptically “Germany must be strong with the religions too – the Muslim ideal is that the church is above the state and the people. Nothing is about the people and the state.”
He wasn’t very worried though – he was convinced that China was strong and that they had the will to grow still.
Maybe he’s right – if they can keep this going – there is an economic weight to the people in China that will drive things forward.
China now has a middle class of real size and still growing. The World Bank puts the number of middle class in China at greater than 360 million and expects the number to more than double by 2030.
There is nowhere else in the world where the middle class is expected to double in the next 15 years and nowhere else where it could have more impact.
If it does double then growth is assured. Let me put that in context. The World Bank expects the mass affluent in China to reach greater than 800 million people by 2030.
That’s twice the entire population of the United States of America with disposable income.
That’s a lot.
But the Genie in the bottle is Inflation. If price inflation starts to run, then the economic miracle could end and end suddenly. I had dinner recently with a journalist who covered China for Fairfax media from Beijing for the past decade and she said she would be unsurprised to see it double and she would be unsurprised to see it halve.
“China” she said “despite its size and its people, is permanently on a knife edge.”
To a certain extent she is right; prices of labour, land and consumables have risen outrageously and you should, taxi fares aside which are still outstandingly cheap, expect to pay western prices for everything that you do in China.
This might be China’s unpicking, the dragon of inflation might yet undo any chance of an economic miracle.
For a start the low cost Chinese jobs have already started moving overseas. Twelve years ago when I started working in China among the people I met were two manufacturers. One made chrome plated parts for rolling mills, the other fine surgical bandages – both the type that you used on the outside of wounds and the ones you left inside the body.
Neither of them manufacture in China anymore – “It’s too expensive,” they say. “The wages are too high – the people want too much.” Both are now manufacturing overseas – in Africa, where the wages are low and the laws are more “flexible.”
It seems you can’t, after all, replace a billion Flying Pigeons with a billion Volkswagen Passats (the car of choice, it seems, in China) without embracing some economic risk and it seems that risk is inflation.
To be honest, it’s not inflation I fear, but its evil twin, deflation. When the hard won assets of the people of China, the houses, the TVs, the shares and investments fall in value and strip the confidence from the country.
If China needs an example of that – it’s a short hop over the East China Sea to Japan to see what deflation looks like.
On balance though, China still feels like a bet worth taking.
Yes the low costs days are gone. The days taking 10 people out after signing a deal to a Mongolian restaurant and eating lamb, singing and playing drinking games with your hosts and customers until you realised suddenly that it was dawn and calling for the bill, to find that the lamb you ate (which was delicious) was $5 a head and the beer was 90 cents a bottle, are gone.
Yes, the copy watches are harder to find and yes they are more expensive – but the desire for more is still there and with the middle class comes middle class needs, which mean that more than ever they are focussed on the future.
To get the future right they will need things like health systems, house insurance and decent savings programs, better banking systems, better education, a more democratic way of storing and sharing wealth – not to mention transport.
It is true, the Flying Pigeon may be gone, but the desire to move irresistibly forward in China still seems to be alive and well.