Page 14 - 2018 White Paper on the Business Environment in China
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8 White Paper on the Business Environment in China
1.1 Chinese Economy and Business Climate
Context changes at LeEco and deals to sell Wanda’s hotels and
tourism businesses showed that the era of relying on
2017 was a clearly was a good year for the high debt to spur growth was over. “These may look like
global economy. The big concerns singular events, but there’s a red line that runs through
about the global economy in recent years such as falling them: the era of relying on high leverage and high debt,
commodity prices, deflation, negative government of eating next year’s food supply this year for brutal
bond yields and overly restrictive fiscal policies have all growth, is over,” said the article, published in People’s
become less apparent. Consequently, The Economist Daily’s economics pages. Beijing is trying to defuse what
Intelligence Unit predicted the world economy would many analysts think is a debt time bomb and stepped
expand by 2.9 percent by the end of the year, compared up a campaign to pressure some of the country’s biggest
with a uninspiring 2.3 percent in 2016. Of course, there and most successful companies to reel in their borrowing
were caveats. The world’s leading economies are at very and spending. The fact that China’s four largest banks
different points of their business cycles. Thus, the current were ranked within the world’s 500 largest firms should
pace of growth is unlikely to last for the long term. not be reason for glee, People’s Daily said, adding that,
China, however, is the furthest through its expansion instead, the lenders should consider how better to serve
phase. The Economist notes that there is evidence of the country’s manufacturing sector. “The real economy is
capacity constraints in some sectors, and the Chinese the foundation of China’s economic prosperity. Finance
government is tightening monetary policy through a is its water and is indispensable, but you cannot put the
gradual curbing of credit growth. A lack of synchronicity cart before the horse,” it said. “No matter how good a
in the global economy will prevent a surge in growth hoe is, if it does not farm nor create harvests, it has no
or major upward pressure on commodity prices, but value.” Sources have also told Reuters that Chinese banks
the global economy is able to expand without stoking have been told to stop providing funding for several of
inflation and thus drawing a major policy response from Wanda’s overseas acquisitions as Beijing tries to curb the
central banks because the pace of growth is gradual. A conglomerate’s offshore buying spree (Goh).
decade on from the financial crisis, the global economy
is finally in place. The Economist refers to it as “a sweet Bloomberg claims Doomsayers have plenty to work
spot, albeit one that will prove short-lived.” In 2017 with in China. The country’s rapid buildup of debt
China’s growth was about 6.8 percent. This status quo reached approximately 260 percent of GDP in 2017,
growth is unsustainable since it is generated partly from 160 percent less than a decade ago. This alone
through an increase in indebtedness, accompanied by seems almost guaranteed to herald a financial crash
rapidly rising property prices in some cities. President or at least a major correction, quite likely followed
Xi Jinping is expected to sanction policy to rein in credit by years of stagnation. If the world’s second-biggest
around the beginning of 2018. Firms in the construction economy ultimately defies the doubters, though, this
and real estate sectors will be hit hardest (EIU). may well be seen as the year things turned around. For
example, China is on track to see its best nominal GDP
Debt performance since 2011. First-half of 2017 GDP numbers
showed that the economy is now requiring less credit to
Chinese firms will face further pressure to reduce the produce growth for the least in six years. As of the first
level of its debt, which has become the “new normal”, half of 2017, it has taken 2.9 yuan worth of new loans to
and conglomerates LeEco and Dalian Wanda Group were produce one yuan of new GDP growth. That’s down from
bearing the consequences of their high borrowings, an average credit intensity of just over 4 yuan between
People’s Daily said in early August 2017. The mouthpiece 2012-2016, an almost 30 percent reduction. Not enough
of the ruling Communist Party said that recent leadership attention is paid to China’s nominal GDP growth
14
1.1 Chinese Economy and Business Climate
Context changes at LeEco and deals to sell Wanda’s hotels and
tourism businesses showed that the era of relying on
2017 was a clearly was a good year for the high debt to spur growth was over. “These may look like
global economy. The big concerns singular events, but there’s a red line that runs through
about the global economy in recent years such as falling them: the era of relying on high leverage and high debt,
commodity prices, deflation, negative government of eating next year’s food supply this year for brutal
bond yields and overly restrictive fiscal policies have all growth, is over,” said the article, published in People’s
become less apparent. Consequently, The Economist Daily’s economics pages. Beijing is trying to defuse what
Intelligence Unit predicted the world economy would many analysts think is a debt time bomb and stepped
expand by 2.9 percent by the end of the year, compared up a campaign to pressure some of the country’s biggest
with a uninspiring 2.3 percent in 2016. Of course, there and most successful companies to reel in their borrowing
were caveats. The world’s leading economies are at very and spending. The fact that China’s four largest banks
different points of their business cycles. Thus, the current were ranked within the world’s 500 largest firms should
pace of growth is unlikely to last for the long term. not be reason for glee, People’s Daily said, adding that,
China, however, is the furthest through its expansion instead, the lenders should consider how better to serve
phase. The Economist notes that there is evidence of the country’s manufacturing sector. “The real economy is
capacity constraints in some sectors, and the Chinese the foundation of China’s economic prosperity. Finance
government is tightening monetary policy through a is its water and is indispensable, but you cannot put the
gradual curbing of credit growth. A lack of synchronicity cart before the horse,” it said. “No matter how good a
in the global economy will prevent a surge in growth hoe is, if it does not farm nor create harvests, it has no
or major upward pressure on commodity prices, but value.” Sources have also told Reuters that Chinese banks
the global economy is able to expand without stoking have been told to stop providing funding for several of
inflation and thus drawing a major policy response from Wanda’s overseas acquisitions as Beijing tries to curb the
central banks because the pace of growth is gradual. A conglomerate’s offshore buying spree (Goh).
decade on from the financial crisis, the global economy
is finally in place. The Economist refers to it as “a sweet Bloomberg claims Doomsayers have plenty to work
spot, albeit one that will prove short-lived.” In 2017 with in China. The country’s rapid buildup of debt
China’s growth was about 6.8 percent. This status quo reached approximately 260 percent of GDP in 2017,
growth is unsustainable since it is generated partly from 160 percent less than a decade ago. This alone
through an increase in indebtedness, accompanied by seems almost guaranteed to herald a financial crash
rapidly rising property prices in some cities. President or at least a major correction, quite likely followed
Xi Jinping is expected to sanction policy to rein in credit by years of stagnation. If the world’s second-biggest
around the beginning of 2018. Firms in the construction economy ultimately defies the doubters, though, this
and real estate sectors will be hit hardest (EIU). may well be seen as the year things turned around. For
example, China is on track to see its best nominal GDP
Debt performance since 2011. First-half of 2017 GDP numbers
showed that the economy is now requiring less credit to
Chinese firms will face further pressure to reduce the produce growth for the least in six years. As of the first
level of its debt, which has become the “new normal”, half of 2017, it has taken 2.9 yuan worth of new loans to
and conglomerates LeEco and Dalian Wanda Group were produce one yuan of new GDP growth. That’s down from
bearing the consequences of their high borrowings, an average credit intensity of just over 4 yuan between
People’s Daily said in early August 2017. The mouthpiece 2012-2016, an almost 30 percent reduction. Not enough
of the ruling Communist Party said that recent leadership attention is paid to China’s nominal GDP growth
14
