China remains a hugely important investment destination for many of our clients. It is the most populous country in the world and the largest importer and exporter of goods. China is the largest recipient of foreign direct investment in the Asia-Pacific region, while a large number of the country's up-and-coming companies also invest enormously overseas. Our coverage – using our unique Total Analysis model – ensures that our clients make sound investment decisions in the country. We keep them informed of the latest market moves and political developments as part of our 'top-down' and 'bottom-up' perspective. They also benefit from in-depth analysis on 24 of China's most important industries. We provide interactive data and forecasting alongside detailed and risk-assessed analysis from our results-proven research teams. Our aim is for you, as our client, to feel totally at ease doing business in China.
China Country Risk
We expect real GDP growth to continue to slow in 2016, and forecast it to fall to 6.3%, versus 6.9% in 2015. As the economy continues to work through its significant overcapacity issues, job losses in sectors ranging from coal mining to steel production could be significant. Meanwhile, trade accounts will continue to underperform versus previous years, with both exports and imports set to contract for a second straight year.
Economic reforms have been ponderous over recent quarters, and signs of policy incoherence at the provincial and even central level are beginning to emerge. Should the Communist Party of China (CPC) continue to drag its feet on badly-needed SOE reforms and the curbing of overcapacity in the industrial sectors, the economy could be relegated to a multi-year stagnation that could prove difficult to...
China Operational Risk Coverage (9)
China Operational Risk
China Operational Risk
BMI View: China's enormous domestic market and globally integrated supply chains will see the country continue to attract huge interest from foreign investors over the next five years, regardless of a number of legal, regulatory and bureaucratic obstacles inherent in the country's business environment. The sheer size of China's economy and population mean that it will remain an attractive market for foreign investors, as evidenced by the country boasting the largest foreign direct investment inflows of any developing country worldwide. Nevertheless, an uptick in indiscriminate terror attacks across the country and an ongoing slowdown following credit-fuelled economic expansion will continue to...
China Crime & Security
China Crime & Security
BMI View: China's appeal as an investment destination is boosted by the relative absence of major security risks which threaten everyday business operations. Terrorist activity does occur, but it is largely confined to remote western regions, while crime rates in key cities are generally similar or lower than comparable urban areas in other countries. Interstate conflict is a greater concern, but China's considerable capacity for self defence deters any attack on the mainland. Organised crime poses some risk to business activities, largely through money laundering and the promotion of corrupt practices among law enforcement and the political elite. However, the primary concern for businesses in China is endemic cybercrime, against which the government does not provide adequate protection. The impact of cyberattacks on business operations, combined with China...
China Labour Market
China Labour Market
BMI View: China's labour market is tightly regulated with regards to contracting foreign workers and the rate of employer social security contributions, but it remains the largest workforce in the world and is set to remain so for the foreseeable future, despite the country's demographic decline. In addition, China has made rapid progression in terms of education provision, and now produces the most university graduates in highly sought-after technical disciplines, which ultimately reduces the need for foreign investors to import labour in the first instance....
BMI View: China boasts an extensive and well-developed logistics network which has benefited from significant investment in order to enable it to meet the demands of the country's rapid economic growth. There is good coverage of both utilities and transport infrastructure, with supply chains particularly gaining advantage from the quality of freight mode options and extensive maritime and air trade links. Although expansion of industry and trade volumes will be hindered by the economic slowdown, the demands of key economic sectors and supply chains will continue to place a strain on the logistics network. Consequently, the risk of disruption to business operations due to electricity and water shortages, road and port congestion, and workers strikes, will remain pertinent over the medium term. China...
China Trade & Investment
China Trade & Investment
BMI View: Foreign investors in China are able to take advantage of the country's huge domestic market, investment incentives in high value-added sectors and research and development expenditure and relatively stable political environment. Nevertheless, corruption within business and politics remains pervasive in spite of targeted anti-corruption initiatives, and intellectual property protection remains weak. State-owned enterprises enjoy preferential treatment over foreign entities in areas such as credit allocation, taxation and legal protection. Taking these factors into consideration, BMI awards China a score of 51.7 out of 100 for overall Trade and Investment Risk, placing the country 10th out of 35 states...
China Industry Coverage (23)
BMI View: China's weight in the global agricultural sector is swelling, as the country has a growing impact on international production balances and prices. China will maintain its appetite for key commodities for the foreseeable future, with particular potential for production growth in sugar, dairy and livestock. High demand growth, strong government support and the potential for investment and consolidation in these industries will help them outperform in the coming years. However, the agribusiness sector is experiencing challenging times,...
BMI View: We expect a rebound in auto sales in 2016 as the recent tax cut for the purchase of small cars helps to boost consumer sentiment and leads to a rise in sales. We forecast auto sales to grow 4.4% in 2016 to 24.3mn units.
|Passenger Car Sales|
|f = BMI forecast. Source: CAAM, BMI|
The ongoing rebalancing of the economy towards consumption rather investment-led growth will see the passenger car continuing to outperform CVs over 2016-19....
China Commercial Banking
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China Consumer Electronics
BMI View: Currency depreciation and wider economic uncertainty have impacted our headline market forecasts for 2016. However, we maintain a positive medium-term outlook on the sector. This hinges on an anticipated rise in household income, which will offset losses in sales volume with gains in value, and will create a key opportunity for vendors to target the expanding premium market. That said, a hard landing in China remains a downside risk to our outlook.
Latest Updates & Industry Developments
Computer Hardware Sales: USD74.7bn in 2016 to USD87.3bn in 2020, a compound annual growth rate (CAGR) of 4.0% in US dollar terms. Market maturity means growth will be slower than the decade to 2013, but rising incomes has upside for vendors to focus on higher price and margin PCs in the retail market....
Defence & Security
China Defence & Security
BMI View: China's defence industry and military are currently undergoing substantial changes on the back of President Xi Jingping's sweeping reform and modernisation agenda. The promotion of greater civil-military integration will spur military industrial innovation and expand the technological capabilities of the domestic defence sector; however, we note that this process will be slow, and that the country will continue to look to import more technologically advanced equipment throughout our forecast period. Owing to rising regional tensions emanating from the South and East China sea...
Food & Drink
China Food & Drink
BMI View: As the Chinese economy reorients itself around consumption, there will be emerging opportunities for consumer-focused companies in the country over the long term, even as domestic demand has slowed in recent years. China remains the most attractive market from a food and drink perspective, but companies will need to make their product offerings more sophisticated in order to appeal to developing tastes and preferences.
|Food and Drink Spending|
China Freight Transport
BMI View: The Chinese economic slowdown will continue and the impact of net imports of commodities will intensify, affecting the freight sector with weaker than previously expected commodities imports. Iron imports will remain depressed on the back of a weaker steel production. However, private consumption will continue to be robust, exports continue to decline but at a slower pace amid some signs of improving foreign demand supporting freight volumes. Road will continue to remain the most important freight mode, also helped by consumer demand. We maintain a below-consensus growth forecast for China, including a 5.9% real GDP expansion in 2016.
The slowdown in the Chinese economy will result in the GDP growth averaging 5.9% over the next decade as opposed to the 10.1% average seen over the past decade. The growth rate is at the slowest annual rate...
China Information Technology
BMI View: Despite economic uncertainty, the expansion of the Chinese IT market and local industry remains our core scenario. We envisage a CAGR of 8.6% for 2016-2020 as the hardware market gains momentum. Although a hard landing is a downside risk, under our core scenario, we envisage broad-based income growth, enterprise modernisation and government support for the IT industry. In particular, emerging technologies such as cloud computing and the Internet of Things...
BMI View : China's construction sector is undergoing a structural slowdown as the country shifts from an investment driven model, which focused on fiscal stimulus measures targeting the infrastructure sector. Opportunities remain substantial, however, given the country's large infrastructure deficit and ongoing reforms to spur private investment and improve regional connectivity through its One Belt One Road initiative.
Key Trends And Developments
China's construction sector will grow by an annual average of 4.7% between 2015 and 2019, a marked slowdown relative to the 9.3% registered 2010-2014. We have long held the view the sector will see an inevitable slowdown as Beijing steers the economy towards more consumption-led growth, as opposed to an...
BMI View: China's insurance market continues to record healthy growth rates, in both the life and non-life sectors and we hold a broadly positive outlook for the market over the medium term and beyond. Rising average household income rates are boosting the sales of a variety of non-life products, particularly health and motor insurance which lead the non-life sector, with solid growth also expected in the smaller lines, such as credit and financial guarantee insurance. Higher incomes are also expected to stimulate sales in the life sector, along with rising demand from an ageing population. While growth in the Chinese economy has slowed, it remains one of the strongest markets in the region and will continue to attract investors, keen to take advantage of the potential offered by this huge and still expanding insurance market.
China Medical Devices
BMI View: While the market will still offer major potential, the high growth rates of the past decade are looking increasingly unsustainable, as economic growth slows and pricing pressures increase. Even so, the market will remain one of the most attractive in the Asia-Pacific region. The medical device industry will benefit from key elements of China's 13th Five-Year Plan (2016-2020), notably the emphasis placed on the strategic importance of innovation as a fundamental driver of future development. Other strategic priorities, such as the programme to create a "Healthy China" and the drive to increase urbanisation through the establishment of a series of smart city clusters, will also support market growth.
BMI View: China's mining sector will continue to be pressurised by low mineral prices over the coming years. Government-led consolidation will support production growth by state-owned enterprises as smaller miners shut operations, however, depleting reserves, falling ore grades and the relatively short life span of domestic mines will further drive outward Chinese investment.
Oil & Gas
China Oil & Gas
BMI View: China's long-term crude oil and liquids output will remain on a firm downtrend as low oil prices slowdown exploration and render certain high-cost mature and unconventional plays uneconomic. Outlook is more positive for natural gas, as the government seeks to increase the share of gas in the total energy mix. This will prompt domestic firms to ramp-up gas output accordingly, ensuring that growth remains robust over the short-to-medium term. Crude demand will remain strong, driven by continued stockpiling activity, greater teapot imports and robust domestic demand for gasoline, jet fuel/kerosene and petrochemical feedstock, which will drive elevated run rates at existing refineries.
BMI View: The Chinese petrochemicals industry was already witnessing a slowdown in H115, but the yuan devaluation and the stock market crash will have a significant effect on activity over the near term. The export boost gained through devaluation will be offset by slackening domestic demand and long-standing issues of over-capacity in some segments, particularly in the light of mounting environmental concerns, could result in project delays, lower capacity utilisation and potentially some plant closures.
China's economic troubles are set to cause multiple problems for the petrochemicals industry. The fall in the value of the yuan will saddle Chinese businesses with significant foreign-exchange losses at a time of rising debt burdens and slowing growth. Low global interest rates and tight domestic credit conditions have prompted Chinese firms to borrow from abroad and the yuan's...
Pharmaceuticals & Healthcare
China Pharmaceuticals & Healthcare
BMI View: Provincial and county level healthcare markets in China will become increasingly important for multinational pharmaceutical companies. This follows government reforms to channel patient volumes to local medical facilities as well as the saturation of the major hospital markets in tier one cities. Foreign firms seeking to make this shift will have to navigate the significant variances across provinces, strong competition from local drugmakers as well as the low levels of disease awareness among the rural populace.
Headline Expenditure Projections
Pharmaceuticals: CNY608bn (USD99bn) in 2014 to CNY688bn (USD108bn) by 2015; +13.0% in local currency terms and +9.2% in USD terms.
Healthcare: CNY3,594bn (USD583bn) in 2014 to CNY4,079bn (USD640bn) in 2015...
BMI View: This quarter, we have upwardly revised our gas-fired power generation forecasts to take into account the gas pricing reform implemented by the government, which will see materially lower gas prices for the country's businesses and industrial users. In turn, this will serve to marginally reduce coal-fired generation in the power mix - in line with government efforts to curb coal use.
China Real Estate
BMI View: China's property market is suffering from oversupply due to years of high levels of development. Rising demand is not sufficient to drive up rental rates. The government is restricting development activity in 2015 and 2016 in the retail sector with the aim of balancing supply and demand. E-commerce firms and foreign entrants to the markets are expected to be key drivers of demand.
China's real GDP growth has been falling since 2010 from a high of 10.6% to 6.7% in 2015 and is forecast to continue falling to 5.9% in 2016. BMI forecasts the growth in real GDP to remain at this level for the...
BMI View: We maintain our long-held positive outlook for China's non-hydro renewables sector and expect growth to remain robust - in line with the government's ambitious targets for renewables capacity. The increased adoption of renewable energy will lessen coal's dominance of the power mix - a key priority for the government given the ongoing pollution concerns.
BMI View: During a difficult 2015 for China, robust household income growth has been one of the few silver linings to the country's slowdown. This translates well into continued retail sales for the coming 2016 year, supported by rising incomes and strong employment. However, this will be a slight drop off from 2015 as the slowdown begins to take its toll. We expect private consumption growth to outperform the remainder of the economy and...
BMI View: In 2016, China's shipping sector is poised to enjoy a healthy year and the country's ports once more dominate the global top 10, a scenario which is not set to change any time soon. The outperformer in y-o-y tonnage terms is set to be one of China's smaller ports, the port of Basuo with annual gains of 8.3%, while the country's two largest ports at Shanghai and Shenzen are pencilled in to register steady box and tonnage growth over the next 12 months. Growth is predicated on the fact that China will remain one of the world's most attractive consumer stories over the next five-to-ten years, underpinned by several structural...
BMI View : China has officially entered the 4G era in 2015 with greater than anticipated subscriber growth. Large subscriber bases will provide ample room for operators to generate revenue and 4G subscriber growth has mainly been generated through the migration of existing 3G customers to LTE networks. Government efforts to invite private competition into the fixed and mobile sectors, as well as mandate the state-owned operators to reduce data prices and improve network speeds will be positive for growth in the Chinese telecoms market.
|4G Subscription Growth Propels Mobile Market|
|China Mobile Market Forecasts|
BMI View: China's tourism industry is growing rapidly and we are seeing major investment in travel and accommodation infrastructure from both domestic and international developers who are keen to take advantage of growth potential, improving the accessibility of the market and expanding the range of hotel options on offer. Much of the potential growth will be based upon China's large domestic market as the international inbound tourism market has an increasingly mixed outlook: while some source markets will see growth over the medium term, rising economic uncertainty in European source markets and escalating regional territorial disputes...
BMI View: The abrupt rise in population and urbanisation has put a strain on Chinese water resources. China is using up water at an unsustainable rate, with many of the country's rivers having disappeared over the past few decades. Over-extraction is a huge issue and is particularly prevalent in the north, where water resources per capita are decreasing at an alarming rate. We therefore anticipate that over the longer term, desalination will account for a larger share of the country's total water supply mix. However, this will only be true of the wealthier coastal regions with large industrial hubs, as otherwise the cost-risks would outweigh demand requirements.