Manufacturing sector will continue to fuel China’s growth

Despite food price inflation and a stagnant housing market, China should maintain a rapid rate of growth, McKinsey Quarterly reports.

According to Gordon Orr, a director in McKinsey’s Shanghai office, the government will invest heavily in manufacturing, particularly in the central and western regions, offering incentives to attract industrial companies inland. “The manufacturing sector will continue to fuel China’s growth, thanks in part to the lower cost of labour and the improving infrastructure in the country’s interior,” he says.

Orrong also predicts that Chinese acquirers will be bolder in the upcoming year, seeking more international buying opportunities. “The Chinese will continue to purchase property in the United States, but opportunities to acquire businesses there will be scant in 2012, an election year.”

In addition Chinese investment in green tech will spike upward, Orrong reports. “In 2012, the country will expand its efforts to deliver products and services directly to end users in international markets, raising barriers to entry for others.” According to McKinsey expert Orrong, the Middle Kingdom will also boost investment in manufacturing and other upstream segments of the value chain, for instance by acquiring or striking partnerships with struggling Japanese firms to gain access to intellectual property.

“As green-tech matures, the government may let subsidy programs lapse to prevent unmanageable growth and oversupply. Investors are interested,” he concludes.

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