Sustaining Growth In China: IT Vendors Must Target SMEs

On Monday, March 5, China announced that its GDP target for the full year 2012 is 7.5%, lower than the government target of 8% in 2011. This number is also lower than many financial analysts’ estimates and the IMF’s latest estimate of 8.2% in February. At the same time, the government also announced that its consumer price index (CPI) growth estimate is 4% — the same as the 2011 target.

This slight decrease is in line with our recent observations of the overall China economy. Some key reasons for the reduced estimate include:

  • State-owned enterprises (SOEs) have slowed down. In the banking sector, growth from private banks in 2012 is expected to be at least 10% to 20% higher than the “Big Four” banks.
  • Government investment in infrastructure has been revised. For instance, many new high-speed rail projects were put on hold after the Wenzhou train collision in July 2011.
  • Increasing labor costs in China have hurt exports. Foxconn, the largest employer in the manufacturing sector in China, has again increased workers’ base salaries by 16% to 25% beginning in February 2012.
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