An empty passenger plane lifted off from Shanghai’s international airport on an overcast, windy afternoon in May. Flown by five test pilots in orange jumpsuits, it coasted above the Yangtze River Delta for about an hour before reversing and landing back in Pudong.
That flight to nowhere, albeit brief, was symbolic. As the first locally built large passenger aircraft, the successful test of the C919 marked a significant milestone in China’s economic transformation as it tries to upgrade its manufacturing capabilities while getting rid of overcapacity and inefficiencies.
“China has been working hard to create a new version of its economy that’s powered by high-end, hi-tech industries that can compete with the biggest and best in the world”, said Mukhtar Hussain, CEO, HSBC Malaysia.
This is a conducive time for China to make this important transition, with GDP growth stabilising after the slowdown of recent years. Importantly, private sector investment is finally recovering after falling since 2011, with a broad-based rebound in industries from materials to equipment manufacturing to services.
Exports are also expected to grow thanks to increases in global demand and improvements on the supply side. The ASEAN region was one of the top destinations for Chinese exports in May 2017.1 Within the region, Malaysia was one of the top trading partners in terms of export sales which reached $38.5 billion in 2016. This constituted 1.8% of total Chinese exports globally.2
As an example, this year, DRB-Hicom, signed the definitive agreement with Zhejiang Geely Holding to sell 49.9 per cent of Proton to the Chinese conglomerate. It would not only bring about good business opportunities for both companies, but also contribute to the revival of the Malaysian automotive industry and emergence of indigenous brands, regionally. The goal for Proton, a subsidiary of DRB-Hicom is clear, i.e., to turn around financially and achieve sustainability with Geely's technical expertise, penetrate export markets and establish an ASEAN footprint.
Since the beginning of 2016, China has been implementing supply-side structural reforms, driving inefficient state firms to upgrade while cutting capacity and leverage, even as it promotes new technologies, industries and products.
These efforts dovetail nicely with the “Made in China 2025” initiative for high-end manufacturing industries, and plans for an innovative “New Economy” to foster new growth drivers.
The definition of a New Economy can be broad. Describing the concept last year, China Premier Li Keqiang sees it as not just about emerging industries such as e-commerce and cloud computing, but also encompassing areas like smart manufacturing, large-scale customized production, and family farms.