Instead of slowing down, the Chinese economy has entered into a period of stabilization where growth will be sustained by trade with the Global South, according to Denis Depoux, a global managing director at German consultancy Roland Berger.
“I would say this is finished, the golden years—the party is over,” Depoux told Nikkei in a recent interview. But he was quick to add that he would characterize it more as a “stabilization” than a “slowdown.”
Depoux said China’s growth rate of roughly 5% is equates to a “massive” scale. “It’s adding one Holland every year, it’s adding Germany in five years,” he said.
“I’m rather optimistic about the Chinese economy,” Depoux said.
Depoux is one of Roland Berger’s three elected global managing directors. The Shanghai-based Depoux oversees the Asia region. Armed with an extensive business resume in China, he advises global corporations on strategy there and in the area.
China’s economy is on track for stable growth thanks to the fast-growing trade and investment with the Global South, according to Depoux.
“China is basically, when you look at the growth of trade, it’s double digit with pretty much every country in the Global South,” he said.
“The Chinese economy will be less reliant on exporting its products to Europe or to the US or to Japan,” Depoux said. “But more dependent on the rest of Asia, on the Middle East, on Africa, on South America, on Russia, whether we like it or not. It’s a reality.”
Investment flows from China to Southeast Asia in particular are growing “massively,” Depoux said.
“And one reason is because Chinese companies themselves are offshoring their production,” either to access new markets or to go after low labor costs, he said.
China is importing a lot of oil through Myanmar via pipeline, according to Depoux. The infrastructure reduces dependence on the Strait of Malacca, contributing to the “reality that is fueling the Chinese economy,” he said.
“There’s no deglobalization—I’m fighting this term,” Depoux said. Instead, he sees a “dual globalization” defined by two blocs.
China is also rising as a source of technological innovation, according to Depoux.
“40 years ago, the source of innovation in the automotive industry was in the US and in Japan,” he said. “Now it’s in China. Maybe 20 or 30 years ago, the source of innovation in machine tools was in Germany and Northern Europe. Now, it’s still there, but it’s also in Japan, it’s also in … China, increasingly, et cetera.”
China’s economy is not without its risks. Depoux mentioned the slowing recovery in the real estate market, as well as weak consumption fueled by concerns over the aging of society.
There are ways that companies in Japan and Western countries can derisk in China while still being part of its growth, Depoux said. One is joint ownership, so that Chinese capital has skin in the game. Another is for a foreign company to “reuse the proceeds of their existing operations to finance further growth,” he said.
And decision-making can be localized at Chinese affiliates, Depoux said.
But even amid heightened Sino-American tensions, “most companies are not exiting the market,” he said of China.
A new trade war would damage the US economy to the tune of 4% of its 2023 gross domestic product, while China would take a hit of 10%, Roland Berger estimated.
The two countries’ relationship “will, in any case, not get better” regardless of whether Joe Biden or Donald Trump wins the US presidential election in November, according to Depoux.
A Trump administration would “reverse some of the energy transition policy of the US,” Depoux said. This would hurt the planet but “limit the implications of the trade war with China, because … there’s no need for solar panels, there’s no need for electric vehicles, there’s no need for batteries in the US.”
This article first appeared on Nikkei Asia. It has been republished here as part of 36Kr’s ongoing partnership with Nikkei.