Page 46 - 2019 White Paper on the Business Environment in China
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9 White Paper on the Business Environment in China
Beijing to begin a national deleveraging campaign. This an end to their trade dispute, but it was unclear if they
disadvantaged many private firms as credit was often could reach a deal. If they don’t, more punishing tariffs
withdrawn indiscriminately from otherwise profitable loom. There’s also a danger the Chinese government’s
private firms, while state-owned enterprises were stimulus measures will fail to have the desired effect.
generally spared. Additionally, China’s new emphasis on Chinese officials are emphasizing that the economy
party centrality and ideological primacy enhanced the remains broadly stable. Ning Jizhe, head of China’s
role of party secretaries operating within private firms. statistics bureau, said in January 2019 that the trade war
And then there has been confusion over China’s mixed had weighed on the economy but that the impact was
ownership model and whether it was an invitation under our control. Global conditions in 2019 will “be
for private firms to absorb poorly performing public more complicated and severe,” he added, but China’s
enterprises or a fresh opportunity for SOEs to nationalize economy “will move forward with stability”.
well-performing private firms. All these factors were
unfolding prior to the start of the US-China trade war Investment Opportunities
in 2018, resulting in a significant slowing of growth.
Private firms, concerned about an uncertain policy Access to China’s domestic market is gradually
environment, refrained from investing in expansion. The expanding as the Chinese government slowly and
trade war with the US has compounded a pre-existing decisively eases its grip on the flow of foreign money
problem. Perhaps in response, several restrictions on into domestic markets. This presents an important
foreign investment in China’s US$45 trillion financial opportunity for investors. Looser restrictions have
services sector have been eased. Foreign ownership resulted in more foreign institutional investing and
limits in securities firms and mutual funds were raised to increased market liquidity. The progress has given global
51 percent in 2018 with a promise to raise that limit in by index providers more confidence to include mainland
2021. The central government has also tried to improve China stocks and government bonds in benchmarks.
credit availability for Chinese firms. According to Kevin China’s markets have taken a hit since President Trump
Rudd, former Australia prime minister and current took office. Trade tariffs beginning in 2018 added oil
president of the Asia Society Policy Institute in New York, to the fire. China remains an integral part of the US
the key to the success of this push is whether China’s economy, so many economists believed a trade conflict
economic reformers can develop a political narrative with China could hamper the global economy as well.
within the party and country explaining any external China is being deliberate in its approach to market
concessions to the US administration in trade discussions liberalization in part to avoid dramatic swings in capital
as necessary internal reforms to underpin China’s long- flows, which could add significant volatility to both
term growth agenda. This is a tough challenge (Rudd). financial markets and economic growth. The domestic
equity markets, dominated by retail investors, have
Ken Cheung, a strategist at investment bank Mizuho, exhibited many periods of high volatility already. The
said investors were relieved that nothing in the data presence of more foreign institutions with significant
suggested China’s slowdown was worse than previously assets and long-term investing horizons would ideally
thought. Economic growth is expected to drop closer lead to greater stability while diversifying the economy’s
to 6 percent in 2019. But many analysts are skeptical sources of capital. China has been shifting its focus from
about the accuracy of the government figures and say an export-driven, low-cost manufacturing economy to
growth may be significantly lower in reality. Plenty of a consumer-led growth economy. The transition to the
other indicators were flashing red. In December 2018, new economy was expected to support China’s growth.
Chinese exports suffered a surprise decline and annual Capital outflows were a major concern for the country.
car sales fell for the first time in around 20 years. Beijing The ongoing tit-for-tat trade war has made China worry
announced 1.3 trillion yuan (US$193 billion) worth of more about restricting outward investments. It eased
new measures that month designed to help boost the both monetary and fiscal policies in 2018 to manage its
economy including tax cuts for small businesses and economy through the trade war tensions and struggling
reduced tariffs, but experts questioned whether Beijing’s stock market (VanEck).
measures will be enough to return the economy to
strong growth anytime soon. Of course, things could get Calls of a “trade war” between America and China are
even worse before they get better. At the time of this overblown, according to Lloyds Private Bank’s Investment
writing, Beijing and Washington were trying to negotiate Outlook 2019 report. The cheap Renminbi makes exports
46
Beijing to begin a national deleveraging campaign. This an end to their trade dispute, but it was unclear if they
disadvantaged many private firms as credit was often could reach a deal. If they don’t, more punishing tariffs
withdrawn indiscriminately from otherwise profitable loom. There’s also a danger the Chinese government’s
private firms, while state-owned enterprises were stimulus measures will fail to have the desired effect.
generally spared. Additionally, China’s new emphasis on Chinese officials are emphasizing that the economy
party centrality and ideological primacy enhanced the remains broadly stable. Ning Jizhe, head of China’s
role of party secretaries operating within private firms. statistics bureau, said in January 2019 that the trade war
And then there has been confusion over China’s mixed had weighed on the economy but that the impact was
ownership model and whether it was an invitation under our control. Global conditions in 2019 will “be
for private firms to absorb poorly performing public more complicated and severe,” he added, but China’s
enterprises or a fresh opportunity for SOEs to nationalize economy “will move forward with stability”.
well-performing private firms. All these factors were
unfolding prior to the start of the US-China trade war Investment Opportunities
in 2018, resulting in a significant slowing of growth.
Private firms, concerned about an uncertain policy Access to China’s domestic market is gradually
environment, refrained from investing in expansion. The expanding as the Chinese government slowly and
trade war with the US has compounded a pre-existing decisively eases its grip on the flow of foreign money
problem. Perhaps in response, several restrictions on into domestic markets. This presents an important
foreign investment in China’s US$45 trillion financial opportunity for investors. Looser restrictions have
services sector have been eased. Foreign ownership resulted in more foreign institutional investing and
limits in securities firms and mutual funds were raised to increased market liquidity. The progress has given global
51 percent in 2018 with a promise to raise that limit in by index providers more confidence to include mainland
2021. The central government has also tried to improve China stocks and government bonds in benchmarks.
credit availability for Chinese firms. According to Kevin China’s markets have taken a hit since President Trump
Rudd, former Australia prime minister and current took office. Trade tariffs beginning in 2018 added oil
president of the Asia Society Policy Institute in New York, to the fire. China remains an integral part of the US
the key to the success of this push is whether China’s economy, so many economists believed a trade conflict
economic reformers can develop a political narrative with China could hamper the global economy as well.
within the party and country explaining any external China is being deliberate in its approach to market
concessions to the US administration in trade discussions liberalization in part to avoid dramatic swings in capital
as necessary internal reforms to underpin China’s long- flows, which could add significant volatility to both
term growth agenda. This is a tough challenge (Rudd). financial markets and economic growth. The domestic
equity markets, dominated by retail investors, have
Ken Cheung, a strategist at investment bank Mizuho, exhibited many periods of high volatility already. The
said investors were relieved that nothing in the data presence of more foreign institutions with significant
suggested China’s slowdown was worse than previously assets and long-term investing horizons would ideally
thought. Economic growth is expected to drop closer lead to greater stability while diversifying the economy’s
to 6 percent in 2019. But many analysts are skeptical sources of capital. China has been shifting its focus from
about the accuracy of the government figures and say an export-driven, low-cost manufacturing economy to
growth may be significantly lower in reality. Plenty of a consumer-led growth economy. The transition to the
other indicators were flashing red. In December 2018, new economy was expected to support China’s growth.
Chinese exports suffered a surprise decline and annual Capital outflows were a major concern for the country.
car sales fell for the first time in around 20 years. Beijing The ongoing tit-for-tat trade war has made China worry
announced 1.3 trillion yuan (US$193 billion) worth of more about restricting outward investments. It eased
new measures that month designed to help boost the both monetary and fiscal policies in 2018 to manage its
economy including tax cuts for small businesses and economy through the trade war tensions and struggling
reduced tariffs, but experts questioned whether Beijing’s stock market (VanEck).
measures will be enough to return the economy to
strong growth anytime soon. Of course, things could get Calls of a “trade war” between America and China are
even worse before they get better. At the time of this overblown, according to Lloyds Private Bank’s Investment
writing, Beijing and Washington were trying to negotiate Outlook 2019 report. The cheap Renminbi makes exports
46
