Growing Strong | The Rapid Rise of the Chinese Economy
China recently reached an economic milestone. It overtook Japan as the second largest economy after the U.S. wth an average growth rate of 10% over the past three decades, it’s the world’s fastest growing major economy.
A multitude of factors have led to China’s global influence, which was minimal until about 20 years ago. Starting in the late 1970s, the Chinese started establishing some major economic reforms. The country began centering on foreign trade as a means of economic growth; encouraging the formation of private companies and rural enterprises; and relaxing the state’s control over prices.
In the late 80s, the economic reforms begun a decade earlier began to produce results – namely steady growth in investment, a higher standard of living, and, as a result, increased consumption. Since then, China’s economy has expanded significantly. In fact, in some peak years, it even grew by more than 13%, with per capita income almost quadrupling. Some economic analysts predict that China will overtake the U.S. as the largest economy within 20 years.
According to Peter Hall, partner at The Valence Group, the past year witnessed many companies being more aggressive about increasing their geographic presence and exposure to this rapidly growing market. But it’s not just outside corporations acquiring Chinese firms. Chinese companies are also focused on bolstering growth and expanding their own presence – beyond China – as well.
Take state-owned ChemChina, one of China’s largest chemical manufacturers. “ChemChina’s proposed acquisition of Makhteshim’s 60% stake is definitely the most major outbound acquisition deal from China for the year,” said Hall. “The combination of the proprietary products of Makhteshim and the huge market force and potentials from ChemChina will clearly establish ChemChina as a leading player in the agrochemical sector in both China and all over the world.”
An increase in both inbound and outbound acquisitions will only serve to fuel the continued growth of China. But the questions remains: Can it be maintained? Or will the economic boom eventually turn into a bust? To some people, China is the Japan of the 1980s. Others, though, are far more confident about the continuous rapid growth of the Chinese economy. At this point, only time will tell.
John Brown is a retired financial advisor specializing in M&A deals. If you would like to learn more about merger & acquisitions in specialized niches visit Valence Group.
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