The U.S. and China have a long and valuable relationship as trading partners. Both countries are key players in the overall global economy: The U.S. is the world's largest importer, while China is its largest exporter. But some key changes occurring in the Chinese economy are making China an even more important source of products for U.S. entrepreneurs going forward.
Becoming a Manufacturing Leader
From 1978 to 2005, China's per capita GDP soared from $153 to $1,284. Much of this growth was due to China's ability to make low-skill, inexpensive products, such as clothing and accessories.
But in the past decade or so, China has expanded from that focus to manufacturing sophisticated products such as computers, electronic components and automobiles. By 2013, China manufactured more than 90 percent of the world's computers and over 70 percent of the world's cell phones.
No wonder that, in 2010, China became the world's number-one manufacturer, accounting for 19.8 percent of global manufacturing, compared to the U.S.'s 19.4 percent. That number has continued to grow: In 2014, China accounted for 22 percent of the world's manufacturing, the U.S. 17.4 percent.
Now, the Chinese government has launched an ambitious plan to make the nation a leader in innovation and technology. China's spending on research and development (R&D) is projected to surpass that of the United States by 2022. In 2014, according to the Battelle Memorial Institute, R&D spending in China was projected at $284 billion, up 22 percent from 2012. In the same time period, U.S. R&D spending was projected to rise by just 4 percent, to $465 billion.
China is also working to make more of the components in the products it manufactures, rather than importing them. World Bank statistics show just 35 percent of components in Chinese exports are imported, down from a high of 60 percent in the mid-1990s.
Already, electronics are China's number-one export, accounting for $570.9 billion annually or 24.4 percent of the country's total exports, the IMF says. Now, Chinese consumer electronics manufacturers, like Lenovo, which makes PCs and smartphones, are making a name for themselves worldwide. Gartner reports that in 2014, Lenovo ranked third in smartphone sales globally.
Importing and Exporting
As the world's biggest manufacturer, it's no surprise that China is also its biggest exporter, accounting for 12.6 percent of global exports (the U.S. accounts for 8.7 percent). Reflecting the two nations' symbiotic relationship, the U.S. is the world's biggest importer, accounting for 12.8 percent of all imports compared to China's 10.4 percent. In 2013, China surpassed the U.S. to become the world's largest trading nation when its annual trade passed the $4 trillion mark.
A Growing Middle-Class Market
With the world's biggest population-over 1.35 billion people-China is benefiting from the purchasing power of a growing middle class. Since 2000, Brookings reports, major Chinese metro areas have seen annual GDP growth of 11.2 percent on average, compared to 1.3 percent annually in the rest of the world's major cities.
Only 4 percent of China's urban households were middle class in 2000; by 2012, two-thirds were. By 2022, it's projected that 75 percent of the country's urban population-some 630 million people-will be middle class.
When measured by wealth rather than income, China's middle class is already the biggest in the world, according to Credit Suisse. Since 2000, twice as many Chinese citizens as Americans have joined the middle class. During that time period, wealth per Chinese adult has quadrupled, reaching an average of $22,500. China is home to one-fifth of the world's population, and about 10 percent of global wealth.
Selling on Singles Day
As evidence of the growing purchasing power of Chinese consumers, consider this year's Singles' Day. An annual holiday celebrating single people, Singles' Day falls on November 11. In 2009, Alibaba began offering Singles' Day promotions, much like retailers in the U.S. do on Black Friday. Since then, Singles' Days sales have skyrocketed - but the 2015 numbers were particularly impressive. According to eConsultancy:
- Overall Singles' Day sales hit $14.3 billion, up 60 percent from 2014.
- Within 14 hours, sales reached $10 billion - more than 2014's Singles Day total of $9.3 billion.
- In the first eight minutes, shoppers spent $1.4 billion.
- In the first hour, shoppers spent $5.5 billion.
- On average, 120,000 orders were placed every minute.
- 40,000 merchants participated, up from 27,000 in 2014 - and just 27 in 2009.
- Some 6 million products were available in 25 countries.
Alibaba founder Jack Ma told CNBC he expects Singles' Day to become a global holiday within the next five years. With sales like this, his prediction is likely to come true.
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