After nearly five years working in China, building a Chinese database and, more recently, producing a regular news Bulletin, it seems an appropriate time to review the changes that have taken place across this massive nation. From the perspective of an ‘outsider’, I also wanted to offer some personal thoughts on China’s possible future direction.
Let’s start with a few facts: in 2007/8 China’s GDP was $3.43 trillion. By December 2012 that had more than doubled to almost $7.3 trillion – that’s national growth of 113% in dollar terms.
To put that into context, over the same period US growth was just 2.6%, from $13.5 trillion to $13.86 trillion, while the UK and Europe decreased marginally. Of course, during this time we have witnessed the global financial crisis, through which China and much of Asia has seen progress while Europe and, to a lesser extent, the US has gone backwards.
Rapid economic development has transformed China’s cities, its infrastructure, the car parc, the lubricants market and - in some parts of the country at least – the social mind-set. I would, perhaps add a note of caution here, in that I (and other Western observers) believe the current level of China’s infrastructure-led investment and associated bank lending looks unsustainable in the longer-term.
Vehicles
From way behind the Western economies, China’s car parc has grown dramatically. Depending on whose statistics you believe, there are now anything between 38 and 85 vehicles per 1000 people. Either way, this would suggest there is significant growth still to come. With annual sales of more than 12 million vehicles, China’s parc is now one of the most modern in the world and is demanding higher quality standards of lubricants as a result.
The same can be said for manufacturing. From being well behind western standards, levels and quality in China are now at a comparable level. This, again, is encouraging rapid growth in the lubricants and functional fluids market and accelerating demand for higher specification base oils and additives.
The challenge is for the regulations and policies, especially on emission control and environmental aspects, to catch up with the growth. The implications for any lubricants marketer are clear. Growth will continue and brand-building will become increasingly important, as will the control of distributions networks, so that consumers can actually buy the lubricant of choice while being compliant with potentially more stringent regulations.
So, what has this economic transformation and industrial development meant to “an average” Chinese person? Of course the question itself is flawed. The benefits of growth are unevenly spread. The population living in the Coastal zones are economically much more developed than the inland agricultural areas of the country. Recent reports place the GINI coefficient (the measure of the gap between rich and poor) at 0.6 – the UK is 0.35 and Sweden 0.24.
Levelling out the differentials is a key challenge for the incoming government; especially as a significant amount of this inequality could be attributed to corruption; an issue which is now being openly discussed by the leadership in a way that was not conceivable before.
The Internet
Across the world the internet is changing life, business and, of course, the marketing of lubricants and nowhere more than China. Internet access over the last five years has grown from 15% to 40%, with more than 300 million people accessing the web from mobile devices. The use of social media sites such as Sina, Tencent and Baidu makes the control of ideas much more difficult. In the same way as the internet has given a wide range of publics and consumers greater influence, so it is likely that the digital world will play a greater role in marketing all goods including lubricants.
This raises the question of how Chinese state-sponsored capitalism might work? Will it evolve into a looser “hybrid sino-capitalism” for example? During a recent visit, I noticed that Beijing looked extra-ordinarily similar to other world cities, just rather more modern.
Outward vision – inward impact
As China begins to take a more outward-looking perspective, including greater global investment, the aspects of corporate governance that affect organisations acquired abroad will eventually impact on the way Chinese quoted corporations have to operate. This may take longer than some would like, but the major Governmental organisations will, as in other countries, need to adapt. This will be a shock for some Chinese executives. A few of us remember the denationalisation of the traditional industries in Europe and the impact this had on the organisations involved.
In five years’ time, China will again be in a very different place. The new Government will be in the centre of its 10 year period. There will be another new President in the United States and the Chinese economy will be within closer range of becoming the world’s largest economy – and possibly the biggest English-speaking (or learning) block.
The internet will have penetrated 60% of the population, making internet marketing essential and control of ideas near impossible.
The car market is destined to be 50% bigger than the US, supported by both overseas and domestic manufacturers, with high quality lubricants continuing to displace grades and poor base oils.
It promises to be another interesting period, especially for the coming generation.
If you would like to comment on anything you have read in this Bulletin, or offer suggestions as to how might improve our coverage in the future, simply contact Diana at DShen@oats.co.uk. We look forward to hearing from you.
Sebastian Crawshaw
Chairman, OATS