Six business stunners could rock not only China but also the world in 2015

M ost 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. There are potential surprises that are not necessarily likely but definitely possible. And they will be big news if they actually happen. So 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. And CEO Wang Jianlin is China's richest person (note megatrend #1: Urbanization). But in the last two years, the company has been making large moves into entertainment. 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. And recall, Japan's Sony made exactly this same move back in 2004 when it purchased Metro-Goldwyn-Mayer in a $5 billion deal. 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, which given its population and pollution will be the world's largest. You can't win without both. Tesla now has the tech and is attempting to grow in China. It is importing cars and trying to build charging stations across major cities. However, 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 here 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. Chinese diagnostic center iKang, which just went public on the NASDAQ, is a good example of a rapidly growing direct-to-consumer specialty services.

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. There are too many entrenched interests in the current system.

Basically, consumer spending and manufacturing (megatrends 2 and 3) are what is driving modernization. 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. It was a strategy aimed at Apple and it is not a coincidence that CEO Lei Jun dresses like Steve Jobs.

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. If Xiaomi can take Apple's market by offering phones at half the price, another Chinese company can probably now offer smartphones at half the price of Xiaomi.

I predict a company or a series of small smartphone manufacturers will start offering Xiaomi-like smartphones that are both cool and dirt cheap. Apple had a couple of great years in China and then fell. Xiaomi could easily follow this pattern.

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. Last year, apartment prices fell across China. 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. Not a really big one. But maybe a city bank in a second-tier city. Or a major regional real estate developer in a region like Dalian or Inner Mongolia. 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. This large scale, smart population-based R&D will make much of the Western R&D, which is based on machines and few people, seem small and slow.

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. This R&D stampede is already happening somewhat. But it will happen a lot faster. In the past, the key to winning in Chinese manufacturing was being the biggest. Going forward it will be about being the smartest.

Outside of these potential surprises, I expect 2015 to look like a bigger version of 2014. More Chinese tourists will go overseas. More outbound investments will happen. More internal development will happen. The six megatrends (consumers, factories, urbanization, capital, brainpower and the Internet) will all continue to grow. Everything will be bigger.

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

Li Min / China Daily

(China Daily European Weekly 01/02/2015 page13)