Where will growth come from in China in the next few years? A recent informal poll of McKinsey partners in China highlighted the following–which range from the pretty obvious to the somewhat esoteric. It’s a long list, which I felt was a positive.
- E-tailing and the myriad industries that work with product and service owners to bring their products online, and which help them to develop their social media presence. The digital enablers in payments and related service areas are an example.
- Logistics – This will be about much more than delivering ecommerce packages and will include cold storage facilities, the provision of higher quality vehicles, and the consolidation of the industry.
- Services for the family – Vacation travel both at home and abroad, and entertainment such as movies, restaurants, theme parks, and sports. Airlines, theme park operators, movie operators, and ancillary service providers should see growth.
- The usual suspects in healthcare and education services, where spending rises as higher quality (and more costly options) become available and demand grows with the expansion of the middle class. In healthcare services, optical, dentistry, cosmetic surgery, and medical tourism could be some of the fastest growing subsectors.
- Pent up demand for professional wealth management is enormous. Frustration with the uncertain quality of investments is high and trust in many of the current advisors is low. More broadly, demand for financial services, including insurance, should still rise as the middle class matures, although perhaps with newer entrants capturing a disproportionate share of growth.
Growth sectors will not exclusively be those focused on consumers. In serving businesses, growth could be high in IT services as the Chinese private sector plays catch up, having spent only 50% of the levels of their international peers on technology for many years. IT service companies that act both as outsourcers and consultants will benefit.
Modernization of Chinese agriculture will see rapidly rising spend on infrastructure – modern farm equipment, transportation, higher quality seeds and fertilizers – as land is consolidated into industrial scale farms. The pace of transformation of the dairy sector in recent years shows just how rapidly this can progress.
These thoughts came with the caveat that just because there is growth, it doesn’t mean there is a near-term opportunity to make money. Very often in China, the “land grab” era of a sector’s development is marked by over investment and very poor returns until growth slows and some winners emerge.
What would you add or delete from this list?