Managing Asia Series: Growth Forecasting Turns to Domestic Demand

Cornerstone China’s new Life Sciences & Healthcare practice provides a window on the new forces shaping the Chinese economy.

Will 2016 be a year of continued Growth or a year of Consolidation in China!?

President Xi Jiping and Premier Li Keqian have stated that China is in the midst of an economic transformation from a manufacturing base to a more open and service oriented economy. Future growth will be dependent more on domestic demands than driven by exports.

How will these profound changes affect business in the coming two years?

In late September, we gathered CEOS from various industries and asked for their comments in Forecasting 2016.  Here is what we heard.

With the combination of a rapidly changing business environment and the government approach to economic transformations, forecasting and planning in China is no longer a “one-way bet.”

For the past 15 years, the trend in China has always been upward to the point where planners at global headquarters in New York, London and Tokyo came to believe that continued growth was a “done deal”. The only issue was whether they were looking at +25% or +50% YOY.

Starting this coming year, that old way of thinking has fundamentally altered.  If we take the life sciences industry as an example, we are undergoing a “sea change”, leaving behind a long period of calm and stability.

We are headed into tougher regulations which will cost companies more money, time and resources to receive clinical approval for their drugs and devices.  In the areas of sales and distribution, the government has implemented strict measures to control corruption and to centralize control on prescription drugs.  There are also major changes in the government’s policy of reimbursement – in most instances to reduce — for medical devices such as pacemakers and heart valves.

The medical insurance system in China is complex and these changes in government policy will greatly change the expectation of companies in the short and medium terms.

Government Reform

China is also actively encouraging privatization of certain aspects of healthcare delivery. The government-sponsored reform policy seems to be shifting away from a public healthcare system to a privatized system, managed by private healthcare insurance, and this will severely change the way business has been conducted in this sector.

All of which will make forecasting and demand planning in China no longer an exercise with a calculator and simple accounting. To be able to read clearly into the crystal ball, the China CEO needs to be politically honest and possess a complete understanding of the socio-geopolitical environment as well as current information on economic trends, technology, consumer behaviors and the talent market.

It is interesting to note that Senior Executives will soon be assessed on their honesty and the accuracy of their business forecasting, elements which might deemed even more critical than their skills in strategic vision and leadership.

Viewing the China economy overall, there are those who say we are already entering a “winter” phase. However, with 6.5 to 6.8 % GDP growth rate in 2015, it is still one of the strongest markets when compared with the rest of the world.

Those of us old enough to remember the Byrds song “turn, turn, turn” will recall it is adopted from the Book of Ecclesiastes “To everything there is a season” and the promise that after winter there is always spring.

If we are indeed headed into the China winter, may it be mild and short.