Will China Pull A Rabbit Out Of Its Hat In 2011?

The Chinese Year of the Rabbit begins on February 3rd. So what will this year have in store for China? Much the same as 2010? Or will there be some surprises on the cards?

Scott Kronick and Jamie Moeller of Ogilvy Public Relations Worldwide gave their views to AdAgeChina recently. Here are the top five issues that they expect will impact China and the way it does business this year:

1. Manage price inflation

Inflation, currently at its highest level in two years, is a major economic concern and soaring food prices could lead to instability. China will wish to avoid this at all costs. The challenge lies in managing China’s ambitions on several fronts: achieve economic growth, create jobs, stimulate domestic consumption and assume greater international responsibilities, all while keeping inflation under control and maintaining stability. Many of these are incompatible with tightening measures.

2. Encourage domestic consumption

Chinese people are estimated to save up to 50% of their income. As the country is projected to enter a new phase of development, the government is anxious to transform the current growth model, largely driven by exports and inventory investment, to one that is more sustainable.

Spurring domestic consumption is the primary focus. The government has adopted measures to give subsidies and tax-breaks on numerous big-ticket items such as cars and appliances. However, online shopping could drive the next wave of China’s consumption growth. China has 450 million internet users and one-third already shop online regularly. Goldman Sachs predicts annual sales could grow 275% over the next five years to an estimated $300 billion in 2015.

3. Manage China’s labor force

Once a workshop to the world, China is finding it increasingly difficult to manage its workers. They have become noticeably more demanding in recent years, as evidenced by the decision to raise the minimum wage in ten provinces by up to 20%.

Meanwhile, as China pushes forward with its urbanization, the rural-to-urban flight will continue. In the next five years, China’s urban population will reach 700 million and, for the first time, surpass the number of rural residents. What’s more, the migrant workforce is expected to hit 350 million by 2050, larger than the entire U.S. population today. With such a vast migrant labor force, the government’s policies to manage this group will remain pertinent.

4. Reform education, environment and healthcare

China’s recent education boom parallels its status as the world’s second-largest economy. Between 1999 and 2008, the annual enrollment of undergraduate students increased by more than 500%. Yet critics worry that the breakneck expansion of universities in China has negatively impacted the quality of education, made the job market artificially more competitive, and kept salaries stagnant.

New and more stringent efficiency measures are anticipated to address environmental challenges. China is expected to introduce a carbon tax in the near future as an incentive to reduce greenhouse gas emissions. Also, China is willing to share more responsibility globally. At the Cancun climate talks China offered to adopt a binding UN resolution on carbon emissions. These events all suggest that China is making steady progress in environmental reform.

China’s rapidly aging population creates urgency around healthcare. In 2009, Beijing unveiled an aggressive healthcare reform plan as part of the stimulus package. The goal was to improve people’s lives, regulate the pharmaceutical industry, and spur domestic consumption.

5. Build brand China

Developing China’s international reputation continues to be a key component of China’s greater integration into the international community. But the country sometimes seems to send mixed messages.

In the Year of the Rabbit, we expect a resetting of expectations, and a renewed push for soft power in several arenas, engaging a larger host of business and government voices. Central government support will be both in front of and behind the scenes, sharing platforms, offering advice and backstopping the finances.
Parallel to such branding efforts is the Chinese state media’s foray into the global market. For example, CCTV International has 45 million subscribers outside China and last year, state-run Xinhua News Agency launched its English-language TV service, CNC World.

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