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Four Predictions For China In 2016

China is going through significant changes, what does it mean?

7Jan

Despite a turbulent 2015, China is still one of the world's most important economies. This year promises to see a number of changes in the country's development. We've looked at four of these.

Fewer jobs

In September 2015, a state-owned coal company announced that it was going to axe 100,000 workers. The process is still ongoing and represents the nation's most severe job cut for some time.

With China's economy slowing, this cut could be a snapshot of the country's future. This year will probably see a number of major industries - including steel, energy and mining - go through a period of transition, which, according to Market Watch, have all been working under 'recessionary condition' for a long time, and this will inevitably lead to job losses.

Multinationals, including Caterpillar, will also be cutting back jobs throughout 2016 amid the country's economic slowdown.

The yuan depreciates

On New Year's Eve, China allowed the yuan to fall to its lowest rate for five months. The country's stock markets were suspended for the day after a brief half an hour opening, causing investors to fear the collapse would, according to Reuters, cause 'competitive devaluations from its peers'.

The People's Bank of China has been keen to reiterate that while the currency is weak against the dollar, it remains strong against other major currencies. The currency has, however, fallen by 3.5% against the yen and 0.8% against the euro.

Analysts from Forbes predict that dollar-yuan exchange rate will fall to 6.8 by mid-Jan 2016, which could cause ripples throughout the global economy.

Changes to manufacturing

China's economy has traditionally been dominated by manufacturing. The sector, however, is decreasing in influence, with the Caixin Purchasing Managers' Index showing a reading of 47.2 - anything above 50 indicates deterioration.

McKinsey and Company, however, claim that manufacturing will not become irrelevant in 2016. The report states: 'Some manufacturing sectors in China do have massive overcapacity and many mediocre producers. But the country also has successful innovators in many industries, some highlighted in the recent MGI report The China effect on global innovation.'

As we go into 2016, Western manufacturing principals will start to be implemented more readily. This is likely to include agile manufacturing and automation.

The middle class relocate

China currently has a bigger middle class than America. For many years, this trend caused investors to rub their hands with anticipation, but concerns around the class's growth has become a cause for concern.

In Beijing, the city's government has implemented a policy which has seen many jobs, and people, move out of the city's center. In the main, these people have been middle class residents. China's attempts to create satellite cities have failed in the past - while people have moved, jobs haven't - but 2016 could see this policy attempted again in an effort to share the class’s wealth across the country.

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