This year, China is expected to contribute 26.6% of the world's total GDP growth. That will mean that China's contribution to the world's growth will be more than all of the G7 countries put together. Therefore, if China is tweaking its model to rely less on exports to the world and more on boosting consumer spending of Chinese citizens inside China, then that will have big implications for companies that sell in China and also for all countries around the world that import Chinese stuff.
Welcome to China Decode. I'm Alice Han.
In today's episode of China Decode, we're discussing the IMF warning China to pivot as the US Supreme Court reshapes the trade war. How China's emerging as a global hub for medical tourism. Plus, how Seedance 2.0 could be the future of filmmaking and a threat to Hollywood as we know it. All that is coming up. But first, let's take a look at how the Chinese markets are starting the week. The Shanghai Stock Exchange was closed for Lunar New Year. The Hang Seng Index surged 2.5% on hopes that the US tariff decision will relieve trade pressure on China. But more on that later. The Hang Tech Index rose 3.3%, one of its best trading days this year. Chinese chipmaker Semiconductor Manufacturing International Corporation, or SMIC, closed the day up 5%, and tech giant Alibaba closed up 3.5%.
All right, let's get into it. The International Monetary Fund just released a major report on China with a very, very clear message. The export-driven model has run its course. China grew 5% last year, but the IMF projects growth slowing to 4.5% this year and warns the current strategy for China just isn't sustainable. Nearly a third of that growth came from net exports and the yuan is estimated to be significantly undervalued. That combination has fueled a record trade surplus and rising tensions with the US and Europe. Now, later in last week's ruling from the US Supreme Court, which says President Trump overstepped his authority in imposing sweeping global tariffs under emergency powers. If parts of that tariff stack come off, especially on China, it could reshape US-China trade flows at the exact moment Beijing is being told it needs to pivot inward and boost domestic consumption. James, the IEEPA tariffs have been struck down. There was a lot of speculation about this in the run-up to the Supreme Court ruling, but 6-3, pretty unanimous in striking down. China is a big beneficiary. I was looking into the data. The effective tariff rate has gone down 7 percentage points. How do you think about this ruling and the way that China perceives it and the way that China may even be changing its strategy in advance of that April meeting between Xi and Trump?
Yeah, Alice. As usual, we're reacting to a very fast-moving and unpredictable picture, but I think we need to say what we think the most important implications are. And to me, there are three big things. You've just mentioned the first one. The overall impact of this is going to be that the tariffs on Chinese goods being exported to the US will decline by 7%. Now, 7% doesn't sound massive, but it certainly isn't negligible either, especially when you consider that total Chinese exports to the US last year was $525.6 billion. So 7% of that is a very big number. So that's the first thing. I think the first point is that US consumers are going to be able to buy Chinese stuff at an average of 7% cheaper than they used to. The second big thing is that this is likely to reduce the negotiating power of President Trump as he prepares to meet Xi in their summit at the end of this month and in early April. This meeting obviously is of vital importance. It's the first visit to China by a US leader since 2017. So we don't know at this stage whether Trump was planning on using the US tariffs on Chinese imports as a bargaining tool. But if he was, then of course this weakens his position before he goes into that meeting. And the third big thing is that it will effectively reduce pressure on China to pivot its economic model. And this is where we get back to the IMF, the International Monetary Fund, because as you said, last week they came out with their annual report and as they do in almost all annual reports on China, they said that China needs to shift its economic model away from reliance on exports to boost consumer spending. And here again, I think the context is absolutely crucial. You might hear that and think, well, big deal, they're just going to be boosting consumer spending and reducing their reliance on exports. But because China is such a huge economic presence in this world, even small tweaks in China's economic model's orientation can have massive outside impacts on the rest of the world. Just let me give a bit of crucial background here. This year, China is expected to contribute 26.6% of the world's total GDP growth. That will mean that China's contribution to the world's growth will be more than all of the G7 countries put together. G7 countries, of course, are Canada, France, Germany, Italy, Japan, the UK and the United States. So this single country will supply more growth to the global economy than all of the G7 countries put together. And therefore, if China is tweaking its model to rely less on exports to the world and more on boosting consumer spending of Chinese citizens inside China, then that will have big implications for companies that sell in China and also for all countries around the world that import Chinese stuff. Now, I'm really interested to get your take on this, Alice, but personally, I think this IMF report is simply wishful thinking. I do not think that China will change its economic model. I do not think that China will boost its consumer spending in any meaningful way. And I do not think that China will sort of resile, will backpedal at all on its incredible trade export performance, which last year gave China a record trade surplus of about $1.2 trillion. So I think, you know, yet again, the IMF is whistling in the wind and this is not going to have any effect. It basically stands, I think, as a barometer of the West's impatience with China to change its model, but I don't think it's going to have much of an impact in convincing China to change its model. But I'd love to hear your take on that.
Yeah. And by the way, just to give you a data point to completely vindicate what you just said, James, I looked at the January data for electric vehicles in China. We had 286,000 EVs that were exported from China in January. That's up 104% year-on-year. And now China represents, as of January this year, a 49.6% share of total auto exports. And that's again up 13 percentage points year-on-year. BYD, which is the clear frontrunner, is exporting twice the amount of EVs that Tesla is at second place. That's just to give you a sense of what is actually happening on the ground. And to your point, James, even if the IMF and Beijing theoretically understand that China needs to rebalance, we have a lot of private companies on the ground that we're seeing in China that need to export because all they're seeing is domestic headwinds. So they are finding ways to export to APAC, export even to the US with subsidiaries that they've set up, or even to Europe where things again seem to be softening. So to your point, James, I don't think that any of the IMF's advice or recommendations for the Chinese government will really be adhered to, primarily because this is too big of a ship to really seriously steer in the opposite direction. And I think that when we get to the NPC, the National People's Congress, the Lianghui, in early March, we'll probably see a government work report and a 5-year plan, the 15th 5-year plan, focus a lot on China being a manufacturing, high-tech manufacturing superpower. So, you know, what Trump is doing marginally helps China because, to your point, James, it reduces the effective tariff rate on Chinese goods. And Trump so far is still in a dovish mode. He's more interested in his tariff war with the rest of the world. He's put on a 15% global tariff through Section 122. Again, showing that even if IEEPA is struck down, he's got so many other tools. So I think that this trade war hasn't stopped. He's going to continue to use different instruments. But what is clear is that he wants to have a good photo op moment with Xi Jinping in Beijing, in China, in early April. So he's going to do everything he can to reduce the tensions in that relationship, tariffs being one of them, because effectively the 10% fentanyl tariff has been struck down by the Supreme Court ruling. And then we'll have to see going into the meeting whether or not soybeans are on the table as well. But to your point, this is coming at a good time for China. Meanwhile, China is negotiating better deals on the trade front with Canada, with the UK, with Europe. Merz is actually going to be there in a few days. So we'll have to see what the German chancellor says from his high-level meetings, which is the first in many years from a German chancellor going to China.
Yeah, I think so. And I was just doing a little bit of research, Alice, on whether or not China could actually boost consumer spending. Obviously, you know, the whole Fortune 500, the biggest companies in the West, they all want to sell into China. They're all dreaming of a market of over a billion consumers. So this is a big live topic. But it seems to me that the optimism, as I think we both agree, is being overblown. And from what I was able to ascertain, basically the problem is that property prices in China continue to fall and also property transactions in China continue to fall. This year, property transactions, so property sales, are due to fall another 10 to 14% compared to last year. And the crucial way in which this connects with Chinese consumer spending is that first of all, most Chinese people have put most of their money into property. So they feel rich or they feel poor depending on how much they perceive their flat or their apartment or their house to be worth. The second crucial aspect is that a lot of Chinese families, they borrow against the value of their house in order to spend on something like their kids' education or some other crucial service that they require. And so if the value of your house is falling, you can't borrow as much as you did previously or you don't want to borrow as much as you did previously. And therefore, you're much less likely to spend on things that you either want or you think you need, like education or health care or something like that. And though all of those things fall into the general category of Chinese consumer spending. So I think that until we see a rebound in China's property market, we are unlikely to see a rebound in China's consumer spending. And according to the best predictions out there, we're not likely to see the Chinese property market bottom out until about 2027 at the earliest. And unless you've heard something different.
I mean, I did. We ran regressions and did research on this. I would probably say 27 to 28. I think we're probably going to see prolonged contraction in the real estate sector. And I don't think, crucially, we're going to see a lot of policy support at this NPC meeting coming from the government because frankly they wanted this to change. They wanted this asset bubble to break. And they're more interested in boosting investment and growth elsewhere in the economy, namely the manufacturing sector, which leads back to the beginning of this discussion. But to your point, just so people get perspective, Chinese households used to have around 2020 to 2021, 70% of their wealth tied in real estate. It's now gone down to 60% just purely because people are buying less but also prices have gone down. And for reference, only 5% is in equities and 25% is in savings deposits. If you look at America or many of the developed countries, that ratio somewhat flipped, whether it's more equities and heavy as opposed to real estate. So this is a structurally sui generis phenomenon in China where household consumption is so heavily associated with real estate prices. Okay, we'll be back with more after a break. Stay with us.
Welcome back. For years, Western travelers have raved about China's high-speed rail and glittering skylines. Now, some are raving about its hospitals. A viral video from a British patient who flew to Beijing for stomach pain and says she was tested, diagnosed, and treated for about $400 has sparked a bigger conversation. I landed in Beijing yesterday and I'm here. It's very blue. I saw the specialist this morning. She was very patient. She was really nice. She could not believe that I'd had symptoms for like one to two years. She could not believe that it had taken so long for anything to happen. Why are some foreigners finding faster, cheaper care in China than at home? And as we discussed in the previous segment, China is under pressure to rebalance its economy away from exports and towards domestic consumption, in particular the services sector. Medical tourism is increasingly part of that shift. Last year, Chinese hospitals treated nearly 1.3 million foreign patients, a sharp post-pandemic jump. And under the government's Healthy China 2030 initiative, Beijing is actively promoting a mix of modern medicine and traditional Chinese medicine to attract both regional and Western visitors. But there's a tension. Public hospitals are already stretched and some Chinese citizens worry foreigners are benefiting from taxpayer-funded care. James, you've been following this closely. What do you make of this rise in medical tourism? And is China going to turn into a Korea or a Turkey in the sense that a lot of people around the world are just going to go there for cheap operations and healthcare?
The short answer is I think it absolutely will. And the UK woman that you mentioned, whose video has been on Facebook and probably on other platforms, really struck a chord with me personally, Alice, because I live in Southeast London. It's not a particularly smart part of the town, but it's a decent place. I haven't been able to get an appointment with our National Health Service, that's the free healthcare in the UK, for a couple of years.
You've been on the wait list for a couple of years.
For a couple of years. Gosh, just for sort of routine tests. I mean, I hope nothing major. And so when I listened to the video from this UK woman that you mentioned, I was really struck. She's there in Beijing. She's on day one. And she said the first thing she says to the video is, I couldn't get an appointment for over a year, so I flew out to China to see somebody and I've been seen immediately. So when I heard that, I thought, well, maybe I need to go to China to see a doctor. The other thing is the costs that you mentioned are really very reasonable. I mean, you mentioned it was about £400. That's £298. But for that, she got an endoscopy. She got blood tests. She got an electrocardiogram, a biopsy. She got various drugs. She had consultations with the consultants at the hospital. And it all happened immediately. It was like she went in the next day there were tests. The day after that it was tests. And she says, "This is phenomenal." And I have to tell you, Alice, well, you're in the UK, too.
It's broken Britain. It is, I'm afraid, we have to be honest about this. It is phenomenal that you can get that type of healthcare in China that quickly at that sort of price. So, I think in answer to your question, will this create a flood of foreigners from probably all over the West heading to China for medical treatments? I think the answer has to be yes. And we're already seeing it now. I would say I think people all over the world are going to be looking at this. Just one extra little statistic here. The Chinese Hospital Association has said that according to incomplete statistics, about 850 hospitals and clinics in 57 cities across mainland China are offering international medical services. That was in 2024. So by now it could well be quite a bit more than that. But yeah, I mean, this is an incredible trend. Don't you think, Alice?
I have so many thoughts about this. Where do I start, James? I start with broken Britain. When I first moved here two years ago from the States, I thought, you know, you can't get worse. I'm Australian. You can't get worse than American healthcare. But I actually found worse, which is British healthcare. What I've realized is that until you have an emergency or cancer, you basically don't get seen by a doctor. And I think that, James, a lot of your doctors in the UK have just moved to Australia where they get paid better, they get more vitamin D and sunshine. But to your point, what's been interesting, a couple of threads that I want to pull on. So in China, there is a culture which I don't think is very familiar to a lot of Westerners. It's called zuo yuezi, means to do a 30 to 40-day confinement. It's a post-natal confinement after childbirth where they effectively, you know, treat the pregnant woman like a princess in a spa. All her meals are made for her. She has to do particular exercises. She's not allowed to leave the house, hence it's confinement because she could catch a cold or be exposed to bacteria. So she stays inside a hospital or a spa clinic. And she's given massages, the baby's taken care of, she's fed well. There's a lot of, in Chinese we call it bu yang, a lot of nutritious soups and food that are given to her, a set menu. So she effectively gets to check into a clinic and I've got girlfriends who've been doing this. They pay probably $1,000 to $2,000. There are some offerings of this in the US that I think 10 times that amount. I mean, just factoring in labor cost alone. So I could foresee this being a big trend where not just Chinese or ethnically Chinese people go to mainland China, have a baby there, check into this postnatal clinic, and then get treated to great service. That could be something that I think could be very, very trendy to your point. But if China can get the quality of service right on top of much cheaper labor costs and medical services costs, I think it's a no-brainer that China becomes like a Turkey or South Korea. And as I was doing research, what I found was interesting was that Hainan Island is actually listed by the State Council of Beijing as a special medical zone. You know, we all know about special economic zones like Shenzhen, for instance, but this is a special medical zone in Hainan. It's a first of its kind and basically they allow international travelers, foreigners to come in relatively easily and get cutting-edge, foreign-approved medical treatments and equipment and drugs. Some of them in stem cell research and cochlear implants, to name a few. So this is an interesting direction for China and it fits well with what we've discussed previously, James, how they're really building up tourism. They're really building up music tourism now, medical tourism. It's all part of an effort to get the services sector more booming because, you know, China traditionally does not have a strong services sector.
I'm actually going to Hainan next month. I think it's visa-free. Well, it certainly is for UK people. You can go in there without getting a visa. But the other thing is just to add a note of caution because my own experience of Chinese hospitals was not that great. I had a colleague and we were on a business trip, a Chinese guy, and his lung collapsed while we were on a business trip and I took him straight to hospital because it was an emergency. And when we got there, we were told that he could have the standard treatment, which meant that he'd have to wait a couple of days. That was clearly not going to be an option given the fact that he was gasping for breath. Or he could have the express treatment, but that cost 10 times the amount. And it seemed to me clearly that there was corruption going on there, that they knew that we were in a desperate situation and they could see that I was from a big foreign company and they wanted the money and of course I paid up because when your colleague is gasping for breath with a collapsed lung, you don't have an option. So I would just add that in there. You know, Chinese hospitals are not paragons. Put it that way.
Yeah. Which province was this, James?
It was in Beijing, actually. Yeah.
