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FOCUS: 5 Challenges in Today’s China
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5 Challenges in Today’s China

By John Feng

BT 201812 focus 01


中国经济的增长是毋庸置疑的,但放缓趋势也很明显。预计2019年将是一个遵循过去十年大方向的一年。 根据最近的预测,增长率为6.5%(或6.6%),该国的经济实力仍然显着,但实际情况正在发生变化,政府方法也可能正在发生变化,不仅仅涉及新的公共投资, 也涉及外国投资者的政策。

有两个指标需要加以考虑,应该成为中国政府部门的警示。 首先,有预测称债务与GDP的比率在2022年达到令人难以置信的320%水平。其次,根据中国国务院财务顾问的说法,与房地产相关的未偿还银行贷款可能占80%。

即使没有人能质疑中国在过去30年中所经历的惊人增长,但没有什么是不变的,总是需要进行调整。 该国将继续发展壮大,但对于计划在中国投资的任何人,无论是当地居民还是外国人,都需要考虑一些挑战。

With a little over two months to the end of the year, it is time to start thinking about 2019. In the business and financial worlds, forecasts play a major role and even though I will not confide in you my predictions, there are some topics that continue to be a challenge for the People’s Republic of China.

2019 will not be an exception and the Chinese business landscape will pose a difficult task for those that are not willing to go the extra mile and those who do not pay attention to the news. In this article, I want to point out 5 topics that you should be aware of, not only to better understand the reality of this Asian country but also if you want to do business there.

Economic Pace

Growth of the Chinese economy is unquestionable, but the slowdown trend is also clear. 2017 being the exception, when the growth rate actually went up as compared to the year before, 2019 will be a year which is expected to follow the general direction of the last decade. With the growth rate of 6.5% (or 6.6%, according to the most recent predictions), the economic strength of the country is still remarkable, but the reality is changing and government approach might also be changing, not only regarding new public investments but also regarding foreign investor’s policy.
BT 201812 focus 02

Construction Slowdown

Construction industry is known to be one of the most important and contributes significantly to the growth of any country. China is no exception to this rule. With the economic cool-down, tightening of the credit award criteria and prices of raw materials, levels of housing construction are visibly going down. Having the growth retracted from 4% to 2.5%, a future with no expansion in this industry is close to happen. If some years ago the news about “ghost” cities shocked the world, now, the pace is definitely decreasing and consequently we might see a downtrend in the housing prices as a way to sell what has already been built.

BT 201812 focus 03Centralization

This has been one of the flagships of the Chinese government and should always be taken into consideration, even if in the past years it has been linked with the continuous growth of the country. More than just an economic approach or strategy, centralization impacts all areas of the country, society and international business.

The financial/online payments sector might be where the impact will be more visible in the months to come, as the Chinese government wants to create a clearinghouse to control all payment platforms. Rules for insurance companies, online payment services’ providers and asset-management groups will be stricter and the smallest change in their modus operandi will now have to be reported.

BT 201812 focus 04Repatriation of Profits

Current trade-war between China and the United States might have been the trigger to finally see something that goes against the international expansion plans of Chinese companies and government. According to a survey by the Chinese General Chamber of Commerce, percentage of Chinese companies operating in the US that will transfer all or majority of their profits back to China increased from 9% to 22%. Even if majority of the businesses will reinvest their profits in the US, this is a very significant change that will certainly have an impact in homeland China.

BT 201812 focus 05Financial Risks

All countries can ensure growth if they push the credit limits, but results have been quite clear since 2008, especially in the US and Europe. There are two indicators that have to be taken into consideration and should serve as an alert for the Chinese governmental authorities. First, there are predictions that the Debt-to-GDP ratio can reach an incredible level of 320% in 2022. Second, and according to a Chinese State Council financial advisor, the true levels of the bank’s exposure to the property market is much higher than the “official” numbers put forth by the government. The outstanding bank loans linked to real estate might represent 80% and not just 25% as stated by the government.

BT 201812 focus 06Wrapping Up

Even if no one can question the amazing growth that China has been experiencing for, at least, the past 30 years, nothing is eternal and adjustments are always needed. The country will continue to grow and be strong but there are challenges that need to be taken into consideration for anyone planning to invest in China, either the local population or the foreigners.

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