Article 4 minute read

Economic development and outlook in China

21 May 2018

Economic growth in China remained strong in 2017, beating market expectations. However, this giant economy’s growth has slowed in 2018.

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Here’s what companies need to know before investing in China. 

The government has introduced important measures to slow down the pace of borrowing in the economy since 2016. This has resulted in slower growth in total credit to the non-financial sector to 14.1% annualised in the first eleven months of 2017, compared to an average of 15.9% in 2016. 

Following these deleveraging measures, China seems to be on track to improve confidence levels in the eyes of investors, corporations and consumers all over the world.

GDP growth in 2017 exceeded expectations

China's economy grew by 6.9% in 2017 according to the official report, bringing the first increase in the pace of growth in seven years. The figure exceeded Beijing's official annual expansion target of about 6.5%, much to the delight of investors all over the world. 

The World Bank expects the country’s growth to slow to 6.5% in 2018, then to 6.3% or 6.2% in 2019–20. This is taking into consideration expected tighter macroeconomic policy, more moderate growth in global trade, reforms to discuss overcapacity in a number of industries and minimise economic risks since the global financial crisis.

Rising household income and job creation

Rising incomes and job creation are amongst the best indicators of an economy’s well-being. In 2017, China’s average real household disposable income per capita grew by 7.3%, up from 6.3% in the previous year, and exceeding the pace of GDP growth. The growth was faster in rural areas (7.3%) than in urban areas (6.5%).

In 2017, 13.5 million new urban jobs were created in China compared with 13.1 million in 2016. As a result, household consumption expenditures followed, with an increase in rural areas of 6.8% and urban areas of 4.1% in 2017. This has brought improvements to the nation’s standards of living and the narrowing of rural-urban income differentials.

That being said, China's Consumer Confidence Index (CCI) was at 112 points in 2017, a slight improvement from 106 points in 2016. This improvement is supported by a healthy job market, as well as consumers’ willingness to spend reaching a two-year high, according to the latest quarterly survey from global market research firm Nielsen.

Likewise, business confidence in China increased significantly in 2017, according to a new report from the Association of Chartered Certified Accountants and the Institute of Management Accountants.

The Global Economic Conditions Survey of 1,277 accountants around the world indicates that the business confidence index in China surpassed 30 points in the third quarter; the highest level since 2011.

“Based on its huge population and large market demand, along with the government’s active financial policies, China remains an active destination for business activities,” said Jenny Gu, vice-president of ACCA.

Continued focus on reducing risky debts

China has undertaken tighter monetary and regulatory measures to lower financial risks. The central bank of China requires commercial banks to limit the proportion of wealth management products (WMPs) invested in assets (other than stocks and bonds) to below 4% of total assets and 35% of outstanding WMPs.

Other measures include more thorough and frequent monitoring of bank sector risks (including off-balance sheets), and creating ‘mutual assistance funds’ to mitigate liquidity risks, promote creditor committees in restructuring debt, and establish a State Council Financial Stability and Development Commission to improve regulatory coordination.

In spite of the measures taken by the government, the country’s debt-to-ratio may hit more than 320% by year 2020 - which continues to worry everyone.

Booming industries to keep an eye on

Healthcare - In October 2017, China’s State Council proposed speeding up approvals for new drugs and announced that overseas clinical trial data will be legally available for use in the approval process. This will make room for domestic drug makers with a large pipeline to market their products faster.

Gaming - China’s game market grew to 203.6 billion RMB (about US$30.9 billion) in 2017, a surge of 23% compared to the previous year and became the world leader in total game revenue. More than half of game sales last year, 116.1 billion RMB, were mobile games and it registered an increase of over 30 billion RMB, translating into 41.7% compared with 2016.

E-commerce – China has one of the world’s most renowned and advanced e-commerce environments, with more than US$1.15 trillion of online retail sales recorded in 2017. The Double 11 event on 11 November 2017 – also known as Singles’ Day – turned into a successful experiment of China’s consumption-led economy evolving digitally.

Logistics – The Center for Forecasting Science under the Chinese Academy of Sciences has released a report in 2017 that stated the total revenue of the logistics industry will exceed 9 trillion yuan in 2018. This industry is largely supported by the booming e-commerce industry and the investments in transportation, warehousing and postal industry will maintain a growth rate of 10% in 2018, according to the same report.

Talk to us

In spite of the positive economic performance in 2017, China still has a lot of potential to offer for investors and business growth. However, doing business in China has both its perks and challenges. TMF China has in-depth knowledge and the regulatory and financial expertise to help your company navigate the local complexities.

Whether you want to set up in China or streamline your existing Chinese operations, talk to us.

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