More of same but watch out for surprises

Most of China's business follows from six megatrends: Urbanization, manufacturing scale, rising Chinese consumers, money and lots of it, the brainpower behemoth and the Chinese Internet. There trends are the largest economic forces in the country and they account for most of China's biggest companies and billionaires.

So my predictions for 2015 are that much of this story is going to stay the same. These megatrends are long-lasting and are going to continue to shape most things. Of these six trends, I think the continued evolution of the Internet and the continued rise of Chinese consumers will probably be the biggest business drivers.

However, I also think there are some potential surprises on the horizon. Here are my predictions for the biggest potential surprises in China business for 2015.

Potential surprise 1: Wanda will buy a major Hollywood studio

Wanda is already the largest commercial real estate company in China. It bought AMC theaters and is now the largest owner of movie theatres in both the US and China. It is building a huge movie studio in Qingdao and more than 100 theme parks. It is aggressively attempting to become China's largest entertainment company.

Going after a major Hollywood studio makes sense. I think if the opportunity presents itself, Wanda will aggressively go after a Hollywood studio and could easily end up as one of the major players in Hollywood. The top candidates are probably Lionsgate and MGM.

Potential surprise 2: Wanxiang will leapfrog Tesla and become the world's leading electric car company

There is an interesting battle for leadership in electric cars going on between the US' Tesla and China's Wanxiang. Actually it is a fight between two billionaire entrepreneurs, Tesla's Elon Musk and Wanxiang's Lu Guanqiu. Right now Tesla is arguably the leader in terms of sales and technology.

However, winning in electric cars (not hybrids) will require advanced Western technology and the China market. Wanxiang already has the China market and is now buying Western companies with electric car models and technology. In 2014, it purchased Fisker Auto out of US bankruptcy court. Its Fisker models could hit the market in early 2015.

The potential surprise is Wanxiang rocketing up in China sales. It has the operating platform and complete working models. It could leapfrog Tesla in sales and become the largest electric car company in China, and that would make it the leader globally.

Potential surprise 3: Chinese healthcare will bifurcate into stunning progress and conspicuous stagnation

There is a lot of capital, expertise and government support now going into modernizing the Chinese healthcare sector. That will likely start to show success in 2015. Mostly likely this will be in medical devices, where there are already companies like Mindray, and in certain direct-to-consumer services, such as dental, cosmetic surgery, day clinics and day surgery.

However, rapid success in these sub-sectors will likely be a stark contrast to continued stagnation in hospitals, pharmacies and other core services. And despite lots of talk, I doubt this situation will change any time soon. Healthcare in 2015 will be a mix of impressive progress and impressive dysfunction.

Potential surprise 4: A Chinese smartphone manufacturer will do to Xiaomi what Xiaomi did to Apple

Xiaomi basically took out Apple in the Chinese mass market. As manufacturing costs fell, it offered Apple-like smartphones at a much cheaper price. And it became really hip and did some great marketing.

However, Xiaomi also has the same weakness Apple has in China. It hasn't locked its customers into its eco-system and that makes them an easily interchangeable product and vulnerable to lower cost manufacturing as the price of smartphone manufacturing keeps falling.

I predict a company or a series of small smartphone manufacturers will start offering Xiaomi-like smartphones that are both cool and dirt cheap.

Potential surprise 5: A few well-known real estate developers and / or banks will go bust

Urbanization is the mother of all China trends. Real estate and a lot of other industries depend on people moving into cities and upgrading their homes. While urbanization was strong in 2014, it was not enough to compensate for the surge in real estate supply of the last five years. Some smaller developers went bust. Most scaled back. And banks basically held their breath, hoping the defaults would be relatively small, which they were. This will likely continue in 2015 as the oversupply is cleaned up. Banks and real estate developers will most likely muddle through.

However, I think there is also a solid chance a well-known, brand name real estate developer or bank will go bust. I think we could see some isolated larger bankruptcies. And I would expect the big banks or larger developers to buy them up.

Potential surprise 6: China will revolutionize research, development

I actually think this one is inevitable. Chinese companies like Huawei are scaling up their research and development to a level never before seen. They are hiring tens of thousands of Chinese scientists and engineers to create industrial-sized R&D. We are starting to see the world's largest manufacturers build the world's largest R&D centers.

The effects of this will be far reaching. New products will be developed much faster. New business processes will be invented to drive down costs. And existing products will be made cheaper than before.

If this happens, there will be a stampede of companies setting up R&D facilities in China, just like they did for manufacturing 20 years ago.

The author is a former investment adviser to Prince Alwaleed bin Talal. The views do not necessarily reflect those of China Daily.

(China Daily Africa Weekly 01/02/2015 page1)