Predicting China's future

 

By Barry Lau, Managing Partner & CIO (Private Investments)
September 2018

 

The poet Ban Gu evoked the crowds of the international markets in Xi’an:

“In the nine markets they set up bazaars,

Their wares separated by type, their shop rows distinctly divided.

There was no room for people to turn their heads,

Or for chariots to wheel about.

People crammed into the city, spilled into the suburbs,

Everywhere streaming into the hundreds of shops.”

 

Visitors to China ‎are generally familiar with mega cities like Beijing and Shanghai. Opinions may differ as to the importance of these cities to China, however, few would contest an assertion that today Beijing is the political capital of China and Shanghai is the financial capital of China.

Trotting over the streets, 12 metres above ground on the city wall, which remains intact today, and on which the annual half marathon is run, the magnificence of China's glory can only be appreciated in the combined political and financial capital of China (or even the world) some 1500 years ago in today's Xi’an.

Fortifications of Xi'an, Xi'an, Shaanxi province                                                                      Drum Tower, Xi'an, Shaanxi province

Fortifications of Xi'an, Xi'an, Shaanxi province ​                                                   Drum Tower, Xi'an, Shaanxi province                               

This publication is not a travel blog, however, to fully appreciate the potential of China's future, its glorious history needs to be studied.

Xian is the capital of Shaanxi province in central China with a population of around 12 million.  Today, it is considered as a second-tier city in China. Yet, it remains one of the first ports of visit by many political leaders around the world. Its importance lies in its geographical centredness in China. It boasts thousands of years of history as the commencement point of the Silk Route and was the center of commerce for traders from the world over. 

According to Xian’s Bureau of statistics, the number of tourists that visited Xi’an in 2016 was around 150 million, from which the vast majority were Chinese tourists travelling to explore their country. The revenue growth was around 10% year on year.

Most people have heard of the Terracotta Warriors, the Great Goose Pagoda‎, the Drum Tower, the Bell Tower, etc. But there are other more intriguing sites to be discovered that would tell one about the potential prosperity of China.

Terracotta Army, Xi'an, Shaanxi province                                                                             Bell Tower, Xi'an, Shaanxi province

Terracotta Army, Xi'an, Shaanxi province  ​                                           Bell Tower, Xi'an, Shaanxi province                                                      

During a visit to Huimin Street, the Islamic quarter that has been established for 2 millennia, one can sample the wonderful street gastronomy proffered by an unimaginable concoction of exotic spices that fills the air of the streets, and experience the hustles and bustles of yesteryears' travelers, Chinese or international, filling these streets as today's tourists and residents do. Time appears to have stood still. These streets are packed Monday through Sunday. One is exposed to all five senses when attempting to walk through these streets. It can be very noisy at first, but the ears would dial out the noise and focus on the chiming by vendors of their offerings instead. The eyes would constantly be refocusing from left to the right and adjusting to the array of colors from shops and the pedestrian traffic ahead. One is walking (albeit) side by side with one's neighbours, front, left, right and back. One would smell and literally taste the hundreds of spices flowing in the air from the delightful lamb skewers, which are still grilled on a branch of a tree found locally as they have been for centuries. The daily revenue for the vendors could reach around 9 million yuan or 1.5million USD1.

Another attraction, little known‎ to most visitors, is the ancient Huanqing Palace of the Tang Dynasty Emperors. It is important to note that the first construction of the palace was made longbefore them, during the Western Zhou Dynasty (from 11th century BC to 771 BC), and the first construction of hot spring was made as early as in 221 BC - 206 BC, during the Qin Dynasty. Huanqing Palace is analogous to a Roman Bath, except it was exclusively for the Emperor and the royals. The bath water comes from a natural hot spring that delivers a constant 42°C of hot stream carrying with it many mineral and organic substances, which are seen as beneficial for treating some skin diseases and, according to the local tradition, carries the promise to make skin flawless.

The venue doubles up as a musical performance from 8pm, whereby the stage emerges from the lake after dark. The play tells the story of the Song of Eternal Sorrow, which celebrates the love story of Emperor Xuanzong and his concubine Yang Guifei.  The performance runs two seatings per evening, at 8:10pm and 9:30pm, each carrying an audience of 2300 and the shows are always full. Ticket price is on average 200 RMB (33 USD). Annual revenue collected from this music performance is 196 million yuan or 25 million USD2.

Huimin Street, Xi'an, Shaanxi                                                                                              Huanqing Palace, Xi'an, Shaanxi province

Huimin Street, Xi'an, Shaanxi                                                                                     Huanqing Palace, Xi'an, Shaanxi province​

It is hoped that the above gives a sense of domestic consumption in China currently, but of course, nothing can replace an actual visit to China to proper grasp the momentum of this trend. Xi’an is only one of the many cities in China that are enjoying a renaissance moment in relation to China’s domestic consumption.

Moreover, Xi’an could benefit from its relationship with neighboring countries. Just as traders canvassed the continents from China to Europe for centuries, China has called for the renaissance of the Silk Road. Today's route is named "Belt and Road". Belt and Road is a huge project announced by president Xi Jinping in 2013 and today covering around 70 countries, together accounting for around 60% of world GDP. There are 6 routes to be built, which run through Central Asia, Africa, Russia, Middle East, Southeast Asia and Europe.

As the ‘Belt and Road’ Initiative advances, and Xi’an being in the center of it, the city becomes a core area for development and foreign investments. On April 2017, the Chinese government unveiled to set up a minimum of eight free trade zones around the country, including one in city of Xi’an. In Xi’an it take a form of five areas of development around information technology, biological medicine, tourism, ecology, aerospace and other. The interest in the region can be seen in the scope of the actual utilized foreign investment, which amounted to $5 billion in 2016, an increase of 8.4% from the previous year.

Xi’an, by walking down the memory lane as featured above, could arguably provide an extrapolation of what China could be in the years to come. The poetry from 1500 years ago cited at the beginning of this piece is evident of the fact that China’s revival in its supremacy is not without foundation.

 

1. Assuming that 50% of incoming tourists visit Huimin Street at least once and 90% have some snacks from vendors. Average snack price is assumed to be 50RMB on conservative basis.

2. Assuming each performance is full; it runs from April till October; price of ticket 200RMB (33USD). 

 

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