What will 2024 bring for you and your business? IMD faculty and other experts offer their predictions for the year ahead.
In 2014, President Xi Jinping introduced the term “China’s new normal” to describe the country’s shift towards a slower rate of GDP growth and a maturing economy. This new normal is marked by four key characteristics: mid- to high-rate growth, an upgraded economic structure, a shift from a production investment-driven model to an innovation-driven one, and high risks. Despite challenges from excess supply and stagnant demand, a cautious recovery is expected by most observers, with the growth rate likely to stabilize at around 4%.
The retreat of foreign financial investment in China is notable. Many foreign enterprises are concerned about a deteriorating investment environment, especially with the US Federal Reserve interest rate outperforming returns in Chinese financial markets. This shift also represents a technical adjustment for higher returns rather than only an indication of poor economic performance in China. Take Bertelsmann Investments, one of Germany’s largest venture capital funds, which plans to inject $700m into Chinese startups.
But one cannot look at China as one single business market, nor generalize across industries. Several industries show high growth potential in China and are open to foreign investors, including aviation, healthcare, renewable energy, and high-end manufacturing. Companies like Airbus, Volkswagen, and FUCHS are committing innovation resources to China. AstraZeneca is increasing its investment in China by planning to spend approximately $450m on a factory for making inhalers to treat chronic obstructive pulmonary disease (COPD).
The real estate industry, a vital part of China’s economy, is facing significant challenges. In the first half of the year, national real estate development investment decreased by 7.9% year-on-year to 5,855 billion yuan, with residential investment dropping by 7.3%. Contributing factors include a more conservative investment approach following inflation and economic downturn, along with the bad debt of real estate developers. For instance, companies like Evergrande, now bankrupt, faced a liquidity crisis due to their disproportionate debt compared to their revenue. The Chinese government’s implementation of the “Three Red Lines” policy, a series of financial regulatory guidelines on real estate, has been a response to these challenges. However, the government is cautious about allowing significant real estate price drops to avoid large-scale asset impairments on bank balance sheets.
The Central Economic Work Conference 2024, a pivotal annual meeting in China, has placed a strong emphasis on reform. This year’s conference was pivotal in setting the national economic agenda, focusing on enhancing high-quality development, increasing domestic demand, accelerating opening, and deepening supply-side structural reforms.
The outcomes of this meeting are vital for the international business community. China’s recent policy shifts demonstrate its eagerness for greater global economic integration. Notable measures include welcoming Mastercard into the Chinese market and launching a visa-free travel program for six countries, including France, Germany, Italy, the Netherlands, Spain, and Malaysia. These initiatives underscore China’s commitment to global economic cooperation and provide MNCs with enhanced prospects for business operations and cultural engagement.
However, the reception to this vital meeting has been lukewarm, as more clarity was expected by business leaders. Now, all eyes are on the 2024 ‘two sessions’ in March.
Another key area of focus for 2024 is AI governance. The upcoming Global AI Safety Summit in Seoul, scheduled for May 2024, is a significant event, potentially shaping the trajectory of global AI governance. The summit is expected to unveil China’s stance on AI governance and its willingness for international collaboration in this domain.
China’s commitment to AI originated in 2017, when China’s State Council unveiled the country’s AI development strategy, setting the ambitious goal of becoming the world’s AI superpower. As recently as the 2023 World Artificial Intelligence Conference, it seems that China’s AI community worries less about the existential risks that AI may pose and more about being a fast follower. The anxiety gap between China and the West partly reflects China’s pragmatic approach to technology and its role as a follower.
The new year will likely be instrumental in determining the direction of global AI governance and China’s role in the evolving landscape of AI and technology transfer.
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