Bottlenecks, bubbles and electromobility (Episode 17)

In this Episode of the Podcast, Doris Fischer, Professor for China ( 🇨🇳 ) Business and Economics at the University of Wuerzburg and I talk about two interesting topics concerning Chinese economic development:

  1. 2-digit growth-rates and the induced process of economic down-cooling.
  2. The new growth model and how this fits the strategy of becoming an automotive society and global leaders in electromobility.

Starting with the look at the extraordinary growth by 2-digit growth rates, it was obvious for several reasons that this would not last forever. First, it is clear, that constantly holding high growth rates becomes more and more difficult as growth steadily leads to a higher absolute level. The effort to conserve 2-digit growth rates therefore is hardly impossible at some point. Moreover, the process is not sustainable because it creates bottlenecks that lead to bubbles – we talk about the process of economic overheating. Therefore, the Chinese government decided to adapt the corridor of aimed growth-rates to a range of 5.5 to 7 percent. In general, declining growth is a warning signal from a psychological point of view. The downward correction is more severe for Western companies that made long-term investment decisions based on a higher level of growth. And it is even a warning signal for international financial markets as China has been the steam engine for higher growth in the upcoming years. Consequently, even institutions like the IMF (International Monetary Fund) became afraid. So, even if 7 percent growth is still from a neutral perspective a decent level of growth, it depends on the perspective.

Apart from the discussion about figures of growth, it is more important to look behind the scene and check what is going on structurally in China. Here China has made several smart strategic moves. A big decision was made very early in the 1990s when the Chinese government decided to become an automotive society. This is really a long-term strategy – one has to keep in mind, that by that time it was not allowed for people having private cars (or: car property). Things have changed and the current bet on electromobility has several facets. It reduces dependency on oil, it fits the long term automotive strategy and it is a strategic innovative future technology where China can gain a real global competitive edge. Leaving efficiency aspects and consistent mobility issues in larger cities aside – the strategy, supported by Chinese government, is bearing fruits. 3 of the largest 10 manufacturers of electric vehicles come from China. The largest success at the moment is in the field of electric busses and small vehicles. The next move will be electric SUVs. Although electro mobility will not solve the overall environmental issues, the strategy shows results. The main question will be how to integrate electro mobility in an overall sustainable concept of transportation. The game is on.

Check out #17 Episode of the “WUEconomics – outside the box – Podcast” for more details and insights.