China in 2025 and Implications for Automakers

Gao Feng Insights Paper, January 2015

As we know, China’s economy has been growing dramatically for more than two decades. China is now the world’s second largest economy. Recently, we see rising concerns over the impact of a deceleration in overall economic growth, especially on the automotive sector.

China’s economic growth is likely to continue over the next decade, driven by a mix of continued (albeit more selective) fixed-asset investment and growth in consumption. Continued investment in infrastructure to support a more than 60% urbanized population is anticipated. Household consumption levels will rise as a result of the growth in the population of middle-class wage earners and overall rising incomes. A broad transformation is expected to continue and will present an environment that is characterized by a long term and sustained shift towards a middle-income, consumption-based economy. This trend would lead to a profoundly different economic landscape.

We believe discontinuities in the political, social and economic landscape have the potential to reshape China dramatically in the next decade. While the outlook is positive, there will likely be discontinuities – some upward and some downward – along the way. We believe that the key to sustainable success for businesses in China will depend on their ability to anticipate those trends and challenges that are in the “blind spots” today – but which can create disruptive threats or discontinuous opportunities for those who are able to respond rapidly. In essence, an “early warning system” is needed which leverages unique insights that can be brought to bear on the question of how the market, the regulatory system, and business models may develop over the next decade in China.

In this analysis, we will apply such a thought process to anticipate plausible scenarios for the China auto industry in 2025.

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