December 2018
Major economic indicators p1/Policy updates p10 /Hot topic analysis p12
China Economic
Quarterly Q3 2018
As a result of the negative consequence of
some reform measures, the 6.5% growth
rate of GDP in Q3 is slightly lower than Q2,
and the overall growth trend is expected to
be maintained in the future.
www.pwccn.com/ceq
Content
Ⅰ.
Major economic indicators
1
GDP growth has increased 6.5%
2
Total fixed asset investment reached 48.34 trillion yuan, expanding by 5.4%
4
Property market has shown signs of cooling down
5
PMI is slightly lower than the first two quarters
6
Growth of Industrial Added Values went up by 6.4%
7
Total retail sales of consumer goods went up by 9.3%
8
Imports and exports have grown steadily
9
PPI went up by an average of 4.0%
10
Ⅱ.
Policy updates
11
1.
Private enterprises to receive fair policy treatment
11
2.
China has made a significant improvement in the business climate and the
government is still striving to advance it.
12
Ⅲ.
Hot topic analysis: What is the impact of China’s first import expo on its economy?
13
I
Major economic indicators
Figure 1: Quarterly GDP values and quarterly and annual GDP growth rate
25.00
7.30%
6.90%
8.00%
6.90%
6.70%
7.00%
GDP (Trillion yuan)
20.00
6.00%
5.00%
15.00
4.00%
10.00
1.80%
5.00
1.70%
1.80%
1.80%
1.70%
2.00%
1.60%
1.80%
1.90%
1.30%
1.70%
1.80%
1.80%
1.50%
1.60%
1.80%
3.00%
1.70%
2.00%
1.40% 1.60%
1.00%
0.00%
0.00
Quarterly GDP Value
Quarterly Growth
Annual GDP growth
Source: National Bureau of Statistics of China; Wind
For the third quarter in 2018, China’s GDP
growth has increased 6.5% (6.8% in Q1, 6.7%
in Q2) year-on-year, the lowest over the past
nine and half years. Total GDP reached 65.09
trillion yuan by the third quarter.
Compared to the previous quarterly growth of
6.7% to 6.9% since middle of 2015, 6.5% is not
a surprise at all. Historically, China’s GDP
growth rate sharply dropped to 6.4% in the
first quarter of 2009, when it was hit by the
financial crisis. But for most of the years,
overall growth rate was more than 10% prior
and after the financial crisis.
More specifically, as the government policies
and regulations on real estate macro control
or financial deleveraging are still tight, in Q3,
the growth rate of construction (accounts for
6.39% of the total GDP), financial (8.03% of
the GDP), and real estate (6.69% of the GDP)
industries were only 2.5%, 4.0%, and 4.1%
respectively. Fortunately, the manufacturing
(29.67% of the GDP) and other service sectors
(15.81% of the GDP) continued to maintain
solid growth in Q3.
Source of data: Unless
otherwise stated, economic
data is from the National
Bureau of Statistics, Wind and
financial data from the
People’s Bank of China.
There is no doubt that most of China’s
ongoing reform measures will serve long-term
economic sustainability, but some might slow
down the growth, such as the deleveraging
measures.
Thus, the National Bureau of Statistics
described the economy in the first three
quarters as, “faced with extremely complex
environment abroad and daunting task of
reform and development at home”. It is
absolutely true that a poor international
environment and complicated domestic
situation are the main reasons for the slowing
growth.
Furthermore, in early October, IMF has cut
0.2 percentage points of its forecast for global
economic growth in 2018 and 2019 ( from
3.9% to 3.7%) because of the trade tensions
initiated by the US with China and other
countries. However, IMF said that China’s
GDP growth will not change this year, and for
2018 it will grow at 6.6%, and at 6.2% in 2019.
In Q4, the overall economy might continue to
face some challenges, but it is likely to retain
growth of more than 6.5%. Going forward,
whether China’s GDP growth in 2019 will be
more than 6.5% or not, is up to the extent of
the coming reform measures issued by the
central government.
As long as the other measurements of
economic growth, such as employment
market, prices and household income keep
the current speed, the market sentiment
should be more tolerant to China’s GDP
figures.
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1
For the first three quarters, the output
of the primary, secondary and
tertiary industry was 4.21, 26.30, and
34.58 trillion yuan respectively.
The tertiary industry or service sector,
accounting for 53.13% of the total GDP,
grew by an impressive rate of 7.7% yearon-year, while the growth rates for the
primary (6.4% of total GDP) and
secondary industry (40.40% of total
GDP) were 3.4% and 5.8% respectively.
The growth rate of secondary or
industrial sectors was slightly higher in
Q3.
For the first three quarters, the final
consumption expenditure amounted to
78% (64.5% in Q3 2017) of the total
GDP growth, much higher than the
same period last year.
48.11%
50.37%
51.82%
51.90%
52.30%
44.45%
42.22%
40.82%
41.45%
41.71%
7.45%
7.41%
7.36%
6.65%
5.99%
0.00%
Primary industry
Secondary industry
Tertiary industry
8.66%
40.00%
40.38%
60.00%
20.00%
2
50.96%
47.23%
45.24%
7.53%
44.36%
47.73%
7.91%
45.54%
44.34%
47.65%
8.01%
46.65%
44.79%
46.89%
8.32%
7.81%
42.69%
80.00%
48.56%
In addition, as this year marks the 40th
anniversary of China’s reform and
opening up, a tax cut would be a
symbolic reward to the Chinese people.
100.00%
8.75%
Obviously, the final consumption
expenditure has become more critical
for China’s economic development. This
is probably one of the major reasons
why many experts have called for the
central government to further cut the
income tax, especially for the middle
class. It would definitely boost domestic
consumption if household income can
be increased by cutting tax.
Figure 2: GDP composition
Proportion
Meanwhile, the gross capital formation
(formerly the gross domestic
investment) contributed 31.8% or
dropped 2.9 percentage points than the
same period last year. Again, the net
exports of goods and services had a
negative contribution of 9.8% (1.9% in
Q3 2017), and declined 11.1 percentage
points than the same period last year.
Total fixed asset investment reached
48.34 trillion yuan, expanding by 5.4%
(6.0% in the first half year) year-on-year
in the first three quarters. The growth
rate of fixed asset investment was much
less than the same period in 2017 and
the past few years. It has hit the lowest
level in almost 20 years since 1999.
If we look at the trend of the last few
years, the growth rate of fixed asset
investment declined from a double digit
growth to about 8.5% in 2016, 7.5% in
2017, and probably around 6% for 2018.
Given its huge amount and significance
to GDP growth, the central government
has issued some measures to boost
investment, for instance, reversing
deleveraging, and speeding up approval
of large projects.
As a result, we expect that the growth
rate of fixed asset investment will stop
falling in Q4, and probably rebound a
little bit, maybe a few percentage points
higher than the current levels.
Figure 3: Fixed Asset Investment
13.50%
11.40%
Accumulated growth rate
10.70%
10.30%
10.00%
9.20%
8.60%
8.20%8.10%
9.00%
7.50%
7.20%
7.50%
6.00%
5.40%
Fortunately, private investment
increased by 8.7% (8.4% in the first half
year) and reached to 30.17 trillion yuan,
or 2.7% more than the same period last
year.
By sectors, fixed asset investment of the
primary (1.67 trillion yuan), secondary
(18.07 trillion yuan) and tertiary industry
(28.60 trillion yuan) went up by 11.7%,
5.2% and 5.3% respectively during the
first half year.
More specifically, it is worth mentioning
that fixed asset investment from Hong
Kong, Macao and Taiwan owned
companies went down 6.0%. Meanwhile,
investment of foreign-funded and
domestic enterprises increased 4.7% and
5.8%.
By industries, fixed asset investment of a
few industries dropped below zero,
such as:
•
-5.7% in manufacturing of railways,
shipbuilding, aerospace and other
transportation equipment;
•
-10.7% in production and supply of
electricity, gas and water;
•
-10.5% in railway transportation, and;
•
-4.7% in management of water
resources.
Obviously, most of these industries are
controlled by state owned enterprises or
local governments. Additionally, overall
infrastructure investment only increased
3.3% and it is also a policy oriented
sector. The reversal of government
policies will have a big impact on these
industries, and their fixed asset
investment is expected to grow in Q4 and
2019.
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Figure 4: Growth rates in real estate
20.0%
16.8%
15.0%
14.7%
10.0%
16.8%
15.3% 14.8%
15.6%
15.5% 15.0%
15.5%
6.1%
5.8%
2.0% 2.2%
2.6% 3.0% 6.2% 7.2% 7.0%
6.6% 6.5%
5.3% 5.4%
1.3%
1.3%
0.0%
-3.0%
1.0% -1.0%
-4.3%
-5.5%
-6.5% -5.9%
-5.0%
-7.8% -8.5%
-6.1%
-11.7%
-10.0%
5.0%
Growth rate
-15.0%
-20.0%
16.3%
15.8%
11.4%
12.2% 12.9%
11.5%
11.2% 11.1%
9.9%
9.9% 10.4% 10.3% 10.2% 9.7%
10.1%
8.9%
9.3%
8.2%
9.1%
8.8% 9.7% 9.0%
8.0% 7.4% 7.7%
7.2%
7.0%
5.1%
8.1% 8.8% 8.5% 7.9% 7.9% 8.1% 7.8% 7.5%
3.1%
2.1%
6.9% 6.2%
7.0% 4.8%
5.7%
5.3%
4.6%
15.2%
-1.2%
-3.4%
9.9%
7.8%
2.1%
-2.1%
-19.4%
-25.0%
-30.0%
-35.0%
-40.0%
-33.1% -31.7%
-33.8%
Growth rate of land purchased
As we pointed out in the previous issue,
China’s top leaders have emphasised
stringent control over the rising housing
prices for the first time in many years,
and macro controls and relevant policies
have been becoming even tighter for the
property market. As a result, in the first
three quarters, the total floor space of
commercial buildings sold went up by
2.9% or 1,193 million square meters
(3.3% or 771 million square meters in
Q2). To be more specific, floor space of
the residential buildings increased by
3.3%, office buildings dropped by 9.3%.
In terms of value, the total sales value of
commercial buildings went up by 13.3%
or increased by 10.41 trillion yuan in the
first three quarters (13.2% or 6.69
trillion yuan by Q2), of which residential
housing sales rose by 15.6% (14.8% in
Q2).
Obviously, prices of residential housing
increased again nationwide, however,
the growth rate was much less than the
same period last year. On a month-onmonth basis, in September, both newly
built and second hand residential
housing in tier one cities such as Beijing,
Shanghai, Guangzhou and Shenzhen
have declined slightly.
Growth rate of resources of funds
Growth rate of investment
China’s property market has shown
signs of cooling down. This scenario is
probably inevitable and has been shown
in many ways, for instance:
•
•
•
In the first three quarters, the floor
space under construction increased
3.9% year-on-year.
Floor space of buildings completed
(residential, office and commercial)
dropped by 11.4%.
Floor space of commercial housing
ready for sale dropped by 13%, of
which residential buildings declined
19.4%. This means that inventory is
reducing, and supply is shrinking at
the same time.
On the other hand, investment in real
estate development grew by 9.9% yearon-year to 8.87 trillion yuan during the
first three quarters of this year, of which
6.28 trillion yuan or 70.8% is in
residential housing. Meanwhile, the
growth rate of land purchased continued
to increase by 15.7% in the first nine
months.
The overall growth rate of sources of
funds increased by 7.8% (compared to
7.2% in Q2) in the first three quarters,
and the financing for developers might
be more difficult.
Particularly, bank loans dropped to 5.1%
and personal mortgages fell to 1.2%.
Foreign funds also declined 61.7%,
though it is a small proportion of
4
0.5%
15.7%
sources of funds for developers.
Consequently, developers have to use
internal resources to finance themselves
and face a higher cost of capital.
The property market might be not
optimistic in the future which has been
overheating for years. So long as it stays
at a more reasonable level, overall
economic growth will be more resilient
and sustainable.
Figure 5: Purchasing Managers’ Index
56.0%
55.1%
55.0%
54.0%
54.5%
54.4%
53.8%
53.8%
53.4%
53.7%
55.4%
54.9%
Percentage
55.0%
54.9%
52.4%
52.0%
50.0%
54.6%
53.7%
53.0%
51.0%
55.0%
51.4%
50.2%
49.8%
49.7%
50.2%
50.0%
51.8%
51.7%
51.6%
51.5%
51.5%
50.8%
50.4%
49.0%
48.0%
47.0%
46.0%
Non-manufacturing
China’s Purchasing Managers’
Index (PMI) for the manufacturing
sector in the past three months of July
to September has maintained at 51.2%,
51.3%, and 50.8% respectively. The
overall PMI is slightly lower than the
first two quarters. These indicate the
expansion of manufacturing sector has
dropped.
As we mentioned in the previous issue,
the escalating China-US trade dispute
has affected the PMI in Q3. Particularly
in September, the new export orders
index and import index have declined to
48.0% and 48.5% respectively, 1.4 and
0.6 percentage points lower than the
previous month.
The PMI of large enterprises stayed at
52.1% in September (52.9% in June) and
the PMI of medium enterprises fell just
below the threshold (50%) at 48.7%
(49.9% in June). The small enterprise
PMI rose to 50.4% in September (49.8%
in June), which rarely happens.
Manufacturing sector
50% breaking point
PMI for the manufacturing of healthcare,
special equipment, electrical machinery
and equipment rose to 53.5% or more,
much higher than other sectors.
The production index and new order
index stayed at 53.4% and 53.2% (53.3%
in March) respectively in September. It
means that overall production volume
and the market demand are still stable.
However, the raw materials inventory
index and employed person index were
still weak in September, and continued
to be below the threshold at 47.8%
(48.8% in June) and 48.3% (49.0% in
June). Similar to Q2, the raw material
inventory and the number of employees
in the manufacturing sector did not
improve.
On the other hand, the nonmanufacturing PMI still remained at a
higher level than the manufacturing, as
the business activity index reached
55.0% in June.
in September (54.0% in June). This
indicates the solid performance of the
service sector.
By sectors, the index of business activity
of retail, air transport, post,
accommodation, telecommunications,
software and information technology
services and financial services, remained
at more than 55.0% in September.
Meanwhile, the index of business
activity of road transportation and
capital market services, as well as real
estate dropped below 50% in September.
For the rest of the year, the current weak
manufacturing PMI might stay. It is
hard to foresee when or whether it will
break the threshold of 50%. For the nonmanufacturing PMI, there is no reason
to worry about it at all.
The non-manufacturing PMI of the
service sector remained strong at 54.9%
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Figure 6: Industrial Added Values
7.60% 7.60%
6.80%
6.80%
6.60%
6.00%
6.20%
6.00% 6.00%
5.80%
Growth rate
5.70%
5.90%
6.20% 6.10%
Thanks to supply side structural reforms
and steady production, the growth of
Industrial Added Values for
companies over certain scales went up
by 6.4% (6.7% in Q2, in real terms) yearon-year in the first three quarters. Due
to strong demand, a few sectors enjoyed
a growth of 10% to 13%, including
electricity, special equipment, healthcare
and pharmaceuticals.
The output of special equipment for
environmental pollution control, new
energy cars, and servers substantially
increased nearly 45% to 60% in the first
nine months. Thanks to the strong
growth of exports, the production of
station equipment of mobile
communications, construction
machinery, optical fibre, electronic
components and smart TVs have surged
from about 19% to 32%.
In September, 38 of the 41 major
industries enjoyed year-on-year growth.
Of which, special equipment (9.7%), and
computers, communications and other
electronic equipment manufacturing
(12.6%), ferrous metal smelting and
calendaring (a finishing process used on
cloth and fabrics) processing industry
(10.1%), production and supply of
6
electricity and heat (11.0%) had nearly
double digit growth.
It is noteworthy that manufacturing of
the overall automobile industry went up
by only 0.7% in September (7.7% in the
first nine months), much slower than
previous months.
More specifically, in the first nine
months, the production of automobiles
(20.84 million) decreased by 0.6% (or
by 10.6% in September), of which
passenger cars (8.66 million) increased
by 3.3% (-8.6% in September) and SUVs
(6.93 million) went down by 1.1%
(-13.0% in September).
The sharp decline of production and
sales of the automobile industry is not a
good sign. As a result, the profits of
automobile enterprises also declined
3.8% in the first nine months. Whereas
during the same period, profits from 34
of 41 major industries had increased.
Automobiles is one of the seven
industries that suffered a decrease in
profits. Consumer confidence might
have been hit by the stock market slump,
China-US trade dispute and other
factors.
On the other hand, profits of industrial
enterprises over certain scales rose by
14.7% in the first nine months to 4.97
billion yuan (17.2% year-on-year in the
first half year). Most of the profits came
from iron and steel, building materials,
as well as the petroleum and chemical
industry, which are dominated by SOEs.
It seems that measures to address
overcapacity in production and the
rising of international and domestic
price generated good results.
In terms of types, during the first three quarters, catering
consumption accounted for 10.85% of the total retail
sales of consumer goods, slightly more than automobiles.
It grew by 9.8% year-on-year, while goods retail sales
went up by 9.2% (7.6% in the first half year).
Sales of cosmetics went up by 12.0% and home
appliances grew by 13.4% year-on-year. Sales of clothes,
groceries and foodstuffs (include cooking oil) went up
8.9%, 13.4% and 10.3% respectively. Sales of
communication appliances (devices), petroleum and
related products, and furniture all had a growth rate of
more than 10%.
Figure 7: Retail Sales of Consumer Goods
10.70%
10.56%
10.50%
10.41%
10.30%
10.40% 10.40% 10.40% 10.40%
10.30%
10.20%
10%
Accumulated growth rate
Total retail sales of consumer goods went up by 9.3%
in the first nine months year-on-year to 27.43 trillion
yuan. It has increased by 8.8%, 9.0% and 9.2% in July,
August, and September respectively. The growth of
overall retail sales did not change much from Q2 to Q3,
but figures from Q3 are slightly lower than Q1. It makes
sense as many holidays took place in Q1.
9.80%
9.40%
9.30%
Petroleum accounts for 5.26% of the total retail sales of
consumer goods, while the international oil price has
pushed up the sales growth, not the demand.
Sales of automobiles increased only 0.2% in the first nine
months, and dropped 7.1% in September. It accounts for
10.23% of the total retail sales of consumer goods in the
first nine months and has pulled down total retail sales.
In addition, similar to the past few years, total online
sales reached 6.28 trillion yuan in the first nine months,
growing by 27.0% year-on-year. Online physical goods
sales accounts for 17.5% of the total retail sales of
consumer goods.
In comparison, the per capita disposable nominal income,
reached to 21,035 yuan, has increased by 8.8% year-onyear (after adjusting for inflation, 6.6% real growth) in
the first three quarters. More specifically, it was 29,599
and 10,645 yuan for urban and rural residents and
obviously there is a big gap between these figures.
Figure 8: National Per Capita Consumption Expenditure and
Proportion (2018Q1-Q3) (Unit: RMB)
Other Supplies and
Healthcare and Services, 361, 2.5%
Medical Services,
1,275, 8.9%
Education,
Culture and
Entertainment,
1,556, 10.9%
Transportation and
Communication,
1,931, 13.5%
Supplies and Services,
898, 6.3%
Tobacco and
Food, 4,063,
28.5%
Clothing,
927, 6.5%
Residence,
3,269, 22.9%
On the other hand, the per capita consumption
expenditure increased by 8.5% (6.3% real growth) to
14,281 yuan.
Looking at the national average income and consumption
pattern, it reminds us that China is still a developing
country. For instance, in the first nine months, the
consumption expenditure per capita was as follows:
•
•
•
•
28.5% for tobacco and food (including liquor), and
22.9% for residence;
13.5% for transportation and communication;
10.9% for education, culture and entertainment;
8.9% for healthcare and medical services, and 6.5%
for clothing.
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7
Figure 9: Quarterly Balance of Trade
532.30
-0.10%
3.38%
35.00%
920.30
-1.60%
8.62%
832.30
-13.78%
-3.15%
1109.40
-8.46%
-1.74%
844.10
-1.54%
-0.81%
883.40
8.39%
0.22%
809.90
20.72%
14.52%
865.80
10.17%
7.42%
573.51
11.07%
2.63%
106.80
-1.29%
789.50
0.85%
745.40
-17.12%
990.10
-13.77%
706.9
-8.65%
917.80
2.13%
419.10
31.28%
777.20
16.38%
304.23
12.12%
555.32
19.17%
-6.10%
12.66%
4.76%
-5.86%
-7.82%
-0.40%
13.71%
8.44%
7.10%
9.84%
30.00%
¥1,100
¥900
20.00%
Growth rate
¥1,200
¥1,000
25.00%
15.00%
¥800
10.00%
¥700
5.00%
¥600
0.00%
¥500
-5.00%
¥400
-10.00%
¥300
-15.00%
-20.00%
¥200
-25.00%
¥100
Net Export
Amid the escalating trade dispute
between China and the US, although the
first round of tariffs was imposed in early
July, China’s imports and exports have
grown steadily in Q3. The trade with the
emerging markets particularly with
ASEAN and Belt & Road countries went
up substantially.
Total imports and exports reached 22.28
trillion yuan (6.75 in Q1 and 14.12 in Q2),
increasing by 9.9% (7.9% in Q2 and 9.4%
in Q1) over the same period last year.
Among them, exports went up by 6.5%
(4.9% in Q2 and 7.4% in Q1) year-onyear to 11.86 trillion yuan, and imports
grew by 14.1% (11.5% in Q2 and 11.7% in
Q1) year-on-year to 10.43 billion yuan.
As a result, net surplus in the first three
quarters was 1.43 trillion yuan (0.90
trillion in Q2 and 0.33 in Q1), and
dropped by 28.3% (26.7% in Q2)
compared to the same period last year.
8
(Billion yuan)
Export Growth
Compared to China’s overall trade
growth rate of 9.9%, China’s imports to
and exports from the US only increased
6.5% in the first three quarters to 3.06
trillion yuan (accounts for 13.8% of
China total trade) because of the trade
frictions. More specifically, exports to the
US reached 2.27 billion yuan and increased
by 7.4%, meanwhile imports from the US
was 0.798 billion and went up 3.8%.
Most recently, in September, China’s
total trade with the US increased by
13.1% (405.54 billion yuan), of which
exports went up 16.6% (319.31 billion
yuan) and imports only increased by
1.6% (86.23 billion). Obviously, the
trade dispute has affected imports from
US to China, but not much in terms of
exports yet. It did not influence China’s
overall growth in trade.
For the first three quarters, in addition
to the US, China maintained a steady
growth with other major trading
partners. For instance, trade with the EU
increased by 7.3% (5.3% in Q2), and
ASEAN went up by 12.6% (11% in Q2).
China’s trade with countries under the
Belt & Road countries accounts for
27.3% in the first three quarters,
meanwhile it accounted for 25.0% in
Import Growth
2013 . These markets still have great
potential and are expected to grow faster
than others.
More specifically, trade with Russia,
Poland and Kazakhstan increased by
19.4%, 11.9% and 11.8% respectively.
Finally, even if the trade frictions with
the US cannot be solved in the near
future, so far it seems that the negative
impact on China’s trade is not that
dramatic. Fortunately, there is signal
that both sides are willing to talk about
this issue. The agreement by President
Xi and his American counterpart, Trump
during G20 summit has allowed further
negotiations.
The opening of China International
Import Expo in Shanghai sent out a
strong message that the country is eager
to boost imports from the rest of world.
Thus, imports in Q4 and the next few
years will grow more rapidly than at
present. It is safe to say that as the
world’s largest trading nation, China’s
overall trade and its economic
development will continue to enjoy a
prosperous trend.
Figure 10: Producer Price Index and Consumer Price Index
7.60%
8.00%
5.50%
Growth (contraction) rate
6.00%
4.00%
2.00% 1.38%1.39%
0.00%
-2.00%
6.90%
5.50%
4.90% 4.70%
3.60%
3.10%
2.30%1.88%1.92% 2.08%
1.90%
1.60%1.60%
1.50%1.60% 1.80%
0.90%
2.50%
2.10%
0.10%
-2.60%
-4.30%
-4.00% -4.56%-4.81%
-5.95%
-6.00%
-5.90%
-8.00%
CPI
The Producer Price Index (PPI)
went up by an average of 4.0% year-onyear in the first nine months, which is
2.5% lower than the same period in 2017.
In July, August and September, PPI
increased by 4.6%, 4.1%, 3.6% year-onyear respectively.
During the first nine months, the price
for means of production rose by 5.2%,
and increased 4.6% in September yearon-year.
More specifically, in the first nine
months , the price of mining and
quarrying products rose by 9.0% (5.1%
in Q2) and raw materials rose by 7.1%
(6.7% in Q2). Meanwhile, the price of
consumer goods only increased by 0.4%.
PPI
Again, these price hikes were triggered
by oil prices (extraction of petroleum
and natural gas) which increased to
24.6% (17.0% in the first half year).
As a result, prices of raw chemical
materials, chemical products, rubber
and plastic products also rose much
more than others.
Growth in the consumer price index
(CPI) was slightly higher in Q3. CPI
increased by 2.1% in the first nine months
(2.0% year-on-year in the first half year).
For September, CPI grew by 2.5% (1.9%
in June) year-on-year, which is also
higher than 2.3% in August and 2.1% in
July, mostly because of the hike in food
prices.
For the first three quarters, in addition to
the price of fuel for transport which
increased by 13.1% (9.4% in Q2) year-onyear, the price of food rose by 2.5%, as a
result of the rise in vegetable prices by
7.7% and in egg prices by 14.6%.
Meanwhile, the price of healthcare
remained at a high level and rose by 5.0%.
Going forward, CPI in Q4 might be
around 2.5% or a little bit lower, because
overall food price is not likely to grow
again and the energy related prices are
hard to predict, but other parts of CPI are
expected to remain stable. Historically, in
the past few years, CPI has stayed
between 2% to 1.5%.
Though the overall growth of PPI in the
first nine months was much lower than
that of in 2017, there will be no big
surprise in the rest of the year. For 2019,
raw materials and oil prices might
continue to grow if the global economy
and demand keeps expanding. Therefore
PPI in China might stay at the current
relatively high level, but may not rise as
much as in 2017.
PwC
9
Ⅱ
Policy Updates
● Private enterprises to receive fair
policy treatment
Some of the Chinese private companies are
facing challenges due to the slowdown and at a
symposium on private enterprises at the Great
Hall of the People in Beijing on Nov 1 2018,
President Xi Jinping and other top leaders
reiterated their unswerving support for the
development of private enterprises. As President
Xi pointed out at the meeting “Private
enterprises contributed to more than half of
China’s taxation, 60% of the GDP, 70% of the
technological innovations, 80% of urban
employment and 90% of newly added jobs and
registered companies.”
President Xi, at a symposium on private
enterprises at the Great Hall of the People in
Beijing on Nov 1 2018, President Xi Jinping and
other top leaders reiterated their unswerving
support for the development of private
enterprises. As President Xi pointed out at the
meeting, “Private enterprises contributed to
more than half of China’s taxation, 60% of the
GDP, 70% of the technological innovations, 80%
of urban employment and 90% of newly added
jobs and registered companies.” Meanwhile,
President Xi called for policies to support private
companies at the symposium, more specifically:
10
1)
The burden of taxes and fees on the
companies should be eased.
2) Measures should be taken to address the
difficulty and high cost of financing for
private firms.
3) The playing field should be leveled.
4) Policy implementation should be improved.
(This means no unfair treatment towards
private companies when implementing
government policies and measures).
5) A new type of cordial and clean relationship
between government and business should
be established.
6) Entrepreneurs’ personal and property
safety should be ensured.
Subsequently, relevant government
departments, banks and local governments have
quickly taken actions. For instance, the State
Administration for Market Regulation has been
working on the improvement of the business
environment for private enterprises, banks have
been increasing their lending to SMEs, and
government of Guangdong province has issued
policies to support private companies’ better
access to loans, etc.
● China has made a significant improvement in the
business climate and the government is still
striving to advance it.
According to the World Bank’s annual report Doing Business
2019: Training for Reform, "China advanced to a global
ranking of 46 this year, up from 78 last year, as the country
implemented the largest number of reforms." More
specifically, China ranks:
This is one of the most successful achievements and the
highest recognition for policy makers. Obviously, China’s
reform measures implemented in the past few years have
generated remarkable progress. It is great for government
departments at different levels to move forward, since there
is still room for improvement. As the world’s second largest
economy, China should target to be on the top 10 list
regarding business climate.
On the other hand, a better business environment from one
of the biggest markets is good news for millions of companies,
not only good for the local and foreign owned, but also for
those large and small enterprises.
•
6th for enforcing contracts
•
14th for getting electricity
•
28th for starting a business
•
27th
•
64th for protecting minority investors
•
65th for trading across borders
•
114th for paying taxes
•
121st for getting construction permits
As one of the world’s leading professional service companies,
PwC China has been involved in and provided professional
advice to the government at all levels to enhance business
environment.
for registering property
CHINA’S OVERALL RANKINGS IN RECENT YEARS
Year
2019
2018
2017
2016
2015
2014
Ranking
46
78
78
84
90
96
CHINA’S RANKING FOR STARTING A BUSINESS
Year
2019
2018
2017
2016
2015
2014
Ranking
28
93
127
136
128
158
Source: Doing Business 2019 by the World Bank
PwC
11
Ⅲ
Hot topic analysis
● What is the impact of China’s first import expo on its economy?
The China International Import Expo (CIIE) held in Shanghai on 5 November was initially
proposed by President Xi Jinping last May. It is a major move through which China actively
opens its market to the world and is also an important decision that celebrates the 40th
anniversary of reform and opening up.
As China’s economy is shifting to a more domestic demand and consumption-driven growth
model, the successful opening of the first import expo will not only be beneficial for
increasing imports and promoting the balanced development of foreign trade, but it will also
improve the supply side structural reform, advance the well-being of Chinese people and
even accelerate the globalisation of the Chinese economy. Stimulated by the import expo,
together with policies such as cutting the import tariffs and improving other relevant
regulations, it is expected that the imported products related to the upgrading of
consumption and people’s livelihood might grow substantially in the coming years, such as in
food (including agriculture), automobile, and healthcare sectors etc.
12
Amid mounting trade tensions,
rising imports will be beneficial for
the long-term economic growth
Figure 11: Total value of China’s imports and exports from 1978
to 2017
The size of China’s economy is currently
about two thirds that of the US. But since
2013, in terms of exports and imports,
China has become the world’s largest
market for trade for three consecutive
years. In 2016, China was overtaken by the
US with a difference of US $20.4 billion. In
2017, China became the world’s largest
market for trade in goods again, and
maintained a goods trade surplus of 2.87
trillion yuan (trade in services recorded a
deficit of 1.62 trillion yuan).
Unit: US $ 1 billion
Therefore, under the support of cutting
tariffs and other related policy measures
and the launch of CIIE, China is set to
extensively import foreign goods and
services in the following years. On this
basis, China’s economy will boast
continuous and stable growth, a number of
enterprises at home and abroad will
embrace opportunities to develop at a
faster rate, and people will enjoy a better
life.
2,000
1,500
1,000
-
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
500
China's exports
China's imports
Source: Collected by General Administration of Customs, P.R. China
(GACC), NBS and PwC
Figure 12: China’s imports and exports as a share of GDP from
1978 to 2017
Unit: Percentage
40%
35%
30%
25%
20%
15%
10%
5%
0%
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
In the past decades, trade has been one of
the “three drivers” boosting China’s
economic growth. But as China continues
to develop its economy and further
deepens its reforms and opening-up, it
might be not appropriate to maintain this
huge surplus. While China’s economy is
entering into a new phase characterised by
a domestic demand and consumptiondriven model, the growth of imports bodes
well for mitigating the principal
contradiction facing Chinese society in the
new era, which is between the “unbalanced
and inadequate development and the
people's ever-growing needs for a better
life”. Besides, increasing imports are also
beneficial for the long-term stable growth
of China’s economy.
2,500
China's exports/GDP
China's import/GDP
Source: Collected by GACC, NBS and PwC
PwC
13
More specifically, President Xi Jinping said
during the opening ceremony of the import
expo, that China's imported goods and
services are estimated to exceed US $30
trillion and US $10 trillion respectively in
the next 15 years.
In the short term, if the trade surplus of
goods can be converted into a slight trade
deficit, imports will post an annual
increase of at least 1 trillion yuan. Taking
the first three quarters of 2018 as an
example, China’s foreign trade in goods
was valued at a total of 22.28 trillion yuan,
with the volume of exports and imports
valued at 11.86 trillion yuan and 10.42
trillion yuan respectively as at the end of
Q3 2018. The trade surplus declined by
28.3% to 1.44 trillion yuan over the three
quarters. In 2017, the trade surplus in
goods reached 2.87 trillion yuan.
Regardless of the trade deficit in services,
which was CNY 1.62 trillion (the total
volume of trade in services amounted to
4.70 trillion yuan of which the exports
totalled 1.54 trillion yuan and the imports
totalled 3.16 trillion yuan) for that year,
China still reaped the deficit of over 1
trillion yuan in annual trade.
In addition, the move to convert the trade
surplus into a slight trade deficit will help
relieve trade tensions with some countries,
and it would also enable China to gain an
international reputation for shouldering
more responsibilities as the second largest
economy. Moreover, the settlement of
imports in yuan would promote the
internationalisation of China’s currency
similar to the US. A good case in point is that
the US dollar is used across the world as a
reserve currency, and one of the major
reasons is that US kept a long-term trade
deficit. In particular, many countries along
the Belt and Road hope to export more goods
to China in order to boost their economic
development. In this scenario, it is easier to
settle using the yuan in these countries.
14
In longer term, imports of food,
automobiles, and healthcare goods
might grow substantially
According to China International Import
Expo Bureau, during the event which
lasted six days, deals valued about US
$57.83 billion were signed for the year
ahead. More specifically, the deals
signed included:
•
US $16.46 billion of intelligent and
high-end equipment
•
US $12.68 billion of food and
agricultural products
•
US $11.99 billion of automobiles
•
US $5.76 billion of medical devices
and medical goods
•
US $4.33 billion of consumer
electronics and home appliances
•
US $3.37 billion of clothing and
consumer goods
•
•
Sorted by the value of these imported
products, we can see there are great
potential to increase goods that aim to
meet domestic demand and the
upgrading of consumption. For instance,
in 2017:
•
Imported value of integrated circuits
and crude oil both exceeded 1 trillion
yuan. More specifically, 1.76 trillion
yuan for the integrated circuits and
1.10 trillion yuan for crude oil,
•
517.5 billion yuan of iron ore and
concentrates,
•
More than 300 billion yuan of
automobile and automobile chassis
and spare parts, and plastic in
primary forms,
•
More than 200 billion yuan of
soybean, unwrought copper and
copper products, auto parts, LCD
panels,
•
More than 100 billion yuan of coal,
pulp, steel, airplanes with loads
weighing more than two tons, solid
waste, textile yarns and fabrics
products, pharmaceuticals, natural
gas, copper ore and concentrates,
•
More than 50 billion yuan of refined
oil, natural and synthetic rubber,
metal processing machine tools,
•
Around 30 to 40 billion yuan of fresh
and dried fruits and nuts, cereals and
cereal powder, edible oils, and NO. 57 fuel oil.
US $3.24 billion of services
For the longer term, imported goods
aimed to meet the domestic demand and
the upgrading of consumption are
expected to grow faster. Looking at
China’s current imports, it is mostly:
•
raw materials (crude oil, coal, natural
gas and mineral products),
•
primary industrial products (pulp,
refined oil, fuel oil, copper and
copper, textile yarns, fabrics and
products, primary plastic),
•
medium and high-end industrial
products (integrated circuits,
automotive and automotive chassis
and spare parts, LCD panels,
automatic data processing equipment
and components, pharmaceuticals,
aircraft, diodes and similar
semiconductor devices, steel metal
processing machine tools),
and agricultural products (cooking
vegetable oils, cereals and flour, fresh
or dried fruits, dried nuts and
soybeans).
Obviously, most of these imports served
China’s industrial demand, and some to
contribute to processing. However,
China lacks imported goods that aim to
promote the upgrading of consumption
and improve people’s livelihood.
PwC
15
Take food for example, at present,
levels of consumption have increased
significantly, especially for the middle
class, but domestic food safety issues
occur once in a while. Therefore, the
Chinese consumers are displaying a
growing demand for high-quality food
and agricultural products. As the world’s
most populous country, China will
hopefully import large volumes of these
products. Taking the first three quarters
of 2018 as an example, the per capita
food consumption (including tobacco
and alcohol) in the country accounted
for 28.5 percent of the per capita
consumption expenditure.
In terms of total retail sales of consumer
goods, the total amount of food
(including grain and oil, beverages,
tobacco and alcohol) as well as catering
reached 6.17 trillion yuan in 2017,
comprising 16.8 percent of the total.
Excluding catering consumption which
have a slightly higher additional value,
the total retail sales of food (including
grain and oil, beverages, tobacco and
alcohol) reached 2.2 trillion yuan,
accounting for 6.02 percent.
Compared with the total retail sales of
domestic food and catering, imported
food and agricultural products have
great potential, albeit accounting for a
relatively small share of total retail sales
of consumer goods. China became the
world's largest importer of food and
agricultural products in 2011. In 2017,
the country imported a total of US $58.3
billion of food, nearly 380 billion yuan
calculated by the then dollar-to-yuan
16
exchange rate of 6.5. This accounted for
6.16 percent of the total retail sales of
food and catering in that year and for
17.27 percent of the total retail sales of
food in that year.
It is also worth noting that when imported
foods as a proportion of the total retail
sales increases 1 percentage point, the
value of food that China may need to
import may be as high as US $10 billion.
Automobiles are another example,
as world’s largest market, the
future of automobile imports is
also bright. For instance, in 2017,
automobiles contributed 4.2 trillion
yuan, or 11.53 percent, to the total retail
sales of consumer goods. At the same
time, however, only 8.15 percent of the
total retail sales of automobiles came
from imported automobiles, that is, 1.24
million imported automobiles with a
total turnover of 342.2 billion yuan. As
the tariffs on automobile imports
(including complete vehicles and spare
parts) are further reduced, imports may
also rise sharply.
Healthcare-related products,
particularly pharmaceuticals and
medical devices will also rise
sharply in the coming years, as the
demand for higher quality
healthcare is increasing. In 2017, the
value of imported pharmaceuticals went
up to 181.5 billion yuan and increased
24.1% compared to 2016, meanwhile the
value of imported medical devices rose
to 130 billion yuan and increased by
6.28 percent.
On the other hand, China’s per capita
healthcare consumption expenditure
was 1,451 yuan in 2017 (only about US
$223, which is much less than many
countries. This once again shows that
China is still a developing country),
which accounts for 7.9 percent of the
total consumption expenditure. As a
result, total healthcare consumption
expenditure was more than 2 trillion
yuan, and imported pharmaceuticals
and medical devices account for a small
portion of less than 16 percent. Thus, the
potential is huge as healthcare
expenditure has grown much faster than
other sectors in the past few years.
Figure 13: Distribution of China’s imported goods and services over time
•
Imported goods
1984
Minerals and metals
6%
1997
Minerals and Agricultural
raw materials
metals
5% Food
5%
5%
Agricultural raw
materials 8%
Food
10%
Fuel
7%
Fuel
1%
Manufactured
goods
75%
•
2016
Manufactured
goods
78%
Agricultural raw
materials Food
3%
7%
Minerals and
metals
10%
Fuel
11%
Manufactured
goods
69%
Services
1984
1997
Tourism Finance and
6%
insurance
5%
Transportati
on
50%
Computer,
communications
and other
services
39%
Finance
and
insurance
5%
Tourism
29%
Computer,
communications
and other services
31%
Transportation
35%
2016
Finance and
insurance
4%
Tourism
57%
Computer,
communications
and other
services
21%
Transportation
18%
Source: Collected by GACC, NBS and PwC
Conclusion: How should companies seize the opportunities?
In conclusion, the import expo is a “government-backed platform where enterprises perform” while it is crucial for exhibitors
to figure out how to meet market demands. As for how companies should seize the trend of a surge in China’s imports, we
offer the following suggestions:
•
Every journey begins with a single step”. The CIIE provides small and medium-sized enterprises worldwide with direct
access to the Chinese market at a relatively low cost. To enter the market successfully, it is crucial to select a reputable
channel, wholesale and agency partners, and going it alone may not be the best choice;
•
Imported goods or services also need to be “localised”. The Chinese market, in which lifestyle habits such as food
consumption vary from one place to another, is extremely different to Western markets. Given the huge differences,
companies may need to conduct sufficient market research and surveys before importing food, apparel, accessories and
consumer goods, and services, among others, on a large scale;
•
China has surpassed most of the world’s developed markets in fields such as e-commerce and mobile payments, therefore
many business models that prevail in the West are being phased out in China. In this situation, foreign industry leaders
and medium-sized companies seeking to make inroads into the Chinese market might face risks if they completely
replicate their existing operating models.
PwC
17
Author
G. Bin Zhao
Senior Economist
PwC China
+86 (21) 2323 3681
bin.gb.zhao@cn.pwc.com
Acknowledgements
Special thanks to Thought Leadership and Research teams
for their contributions to the report.
www.pwccn.com/ceq
This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.
© 2018 PwC. All rights reserved. PwC refers to the China member firm, and may sometimes refer to the PwC network. Each member firm is a separate
legal entity. Please see www.pwc.com/structure for further details. CN-20180822-10-C1