Business Monitor International


China Business Forecast Report

Published 16 December 2014

  • 53 pages
  • Instant access to your report online and PDF format through your account library
  • Includes 3 free updated quarterly reports
 
$1,195.00
China Business Forecast Report

Core Views

  • Beijing will continue to implement positive structural reform measures such as deposit rate liberalisation and local government fiscal reforms. That said, we believe that the People's Bank of China will also continue to ease policy in order to support economic growth, and that high debt levels are therefore unlikely to be addressed in the near-term.

  • Xi Jinping has largely consolidated his leadership position, and we believe that he is firmly in control of the Communist Party. This means that policy-making will remain highly centralised and generally cohesive over the medium term. While there remain divides on how to manage the economy, we continue to believe that the government will opt for the middle road of structural reforms with moderate monetary and some fiscal stimulus.

Major Forecast Changes

  • Following the PBoC's surprise interest rate cut to 5.60% in November 2014, we believe that the central bank has tipped a significant shift in its monetary policy agenda. Past precedent suggests that more cuts will follow, and we have downgraded our end-2015 interest rate forecast to 5.20% as a result.

Key Risks To Outlook

  • A key downside risk to our economic outlook remains another collapse in external demand, such as the one that occurred at the height of the global financial crisis. This would seriously undermine growth in trade-dependent industries and hasten a fall in the property market, potentially leading to an outright recession. Given the slowdown in the EU and Japan, a significant drop in performance from the US would make this scenario considerably more likely.

  • A hard-landing scenario is also a key risk in China, as falling property prices amid rising domestic debt levels could set the stage for a financial crisis. While we believe that this eventuality will be averted over the next few years owing to the government's considerable resources, such an outcome cannot be entirely ruled out. In this case, real GDP growth would slow...

Table of Contents

Executive Summary
5
Core Views
5
Major Forecast Changes
5
Key Risks To Outlook
5
Chapter 1: Political Outlook
7
SWOT Analysis
7
BMI Political Risk Index
7
Domestic Politics
8
Abe-Xi Meeting: Little Reason For Cheer
8
Despite the fact that Shinzo Abe's first meeting with Xi Jinping on the sidelines of the recent APEC summit in China represent s a
Despite the fact that Shinzo Abe's first meeting with Xi Jinping on the sidelines of the recent APEC summit in China represent s a
tangible step forward in relations between the two Asian powers, we do not believe that it will lead to a significantly more cooperative
tangible step forward in relations between the two Asian powers, we do not believe that it will lead to a significantly more cooperative
relationship over the near-term
In particular, we find that domestic political realities will continue to inform relatively hard-line stances by
both Abe and Xi
Table: Political Overview
8
Long-Term Political Outlook
9
Major Challenges Over The Coming Decades
9
China faces myriad economic, social and environmental challenges over the coming decades that could seriously test the Communist
China faces myriad economic, social and environmental challenges over the coming decades that could seriously test the Communist
Party of China's ability to govern
The best-case scenario for any eventual political transition would entail an elite-led liberalisation of the
authoritarian system, while the worst-case scenario would involve a violent change of regime
Chapter 2: Economic Outlook
13
SWOT Analysis
13
BMI Economic Risk Index
13
Economic Activity
14
Economy To Cool Further Despite GDP Outperformance
14
Despite the fact that real GDP growth of 7
2%, data
continue to point towards an ongoing economic slowdown
7% in
2015, and note that aggressive stimulus measures are off the table as long as the country's labour markets remain stable
Table: Economic Activity
14
Fiscal Policy
15
Fiscal Reforms Represent Progress, But Challenges Loom
15
The Chinese government's liberalisation of the local government borrowing system will be a long-term boon for the economy
However,
local governments may find it difficult in the near-term to meet their funding obligations while also rolling over rising levels of debt tied to
local governments may find it difficult in the near-term to meet their funding obligations while also rolling over rising levels of debt tied to
unproductive assets
Table: Fiscal Policy
16
Currency Forecast
17
Headwinds Piling Up Against CNY
17
While the Chinese yuan has defied broad US dollar strength over recent months, we see headwinds against the unit piling up over the
While the Chinese yuan has defied broad US dollar strength over recent months, we see headwinds against the unit piling up over the
coming quarters
With the PBoC exhibiting a dovish shift with its latest interest rate cut, we maintain our expectations for the unit to end
2015 at CNY6
Table: Current Account
17
Table: CURRENCY FORECAST
18
Monetary Policy
19
PBoC Gets Aggressive As Growth Continues To Cool
19
The PBoC's surprise interest rate cut on November 21 signals rising concern over the economy's slowing growth trajectory
Given that
the central bank has now made clear that it is willing to pursue more overt easing measures rather than the targeted ones that it had
the central bank has now made clear that it is willing to pursue more overt easing measures rather than the targeted ones that it had
favoured previously, we believe that another interest rate cut may be on the cards in 2015
As such, we have downgraded our end-2015
central bank policy rate to 5
Table: ASET CLAS STRATEGY
19
Table: Monetary Policy
20
Chapter 3: 10-Year Forecast
21
The Chinese Economy To 2023
21
6
21
China's economic growth in the coming decade will be much slower than in the last, as the savings rate declines, the economic
China's economic growth in the coming decade will be much slower than in the last, as the savings rate declines, the economic
liberalisation process slows, and population growth falls
0% over the next
decade as opposed to the 10
Private consumption will be a major outperformer, averaging
growth of 8
Table: Long-Term Macroeconomic Forecasts
21
Chapter 4: Operational Risk
25
SWOT Analysis
25
Operational Risk Index
25
Operational Risk
26
Table: Operational Risk
26
Transport Network
27
Table: Asia - Transport Network Risk
28
Economic Openness
32
Table: Asia - Economic Openness
33
Tab le: Top Five-Products Exported (USDmn)
34
Chapter 5: Key Sectors
37
Infrastructure
37
Table: Construction & Infrastructure Industry Data
38
Table: Construction & Infrastructure Industry Data
39
Oil & Gas
41
Table: Oil Production
42
Table: Oil Production
42
Table: Gas Production
44
Table: Gas Production
44
Other Key Sectors
45
Table: Ph rma Sect or Key Indicators
45
Table: Telecoms Sector Key Indicators
45
Table: Defence & Security Sector Key Indicators
45
Table: Food & Drink Sector Key Indicators
46
Table: Autos Sector Key Indicators
46
Tab le: Freight Key Indicat ors
46
Chapter 6: BMI Global Assumptions
47
Global Outlook
47
Warning Signs Growing
47
Table: Global Assumptions
47
Table: Developed States , Real GDP Growth, %
48
Table: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
48
Table: Emerging Markets , Real GDP Growth , %
49

The China Business Forecast Report helps businesses with market assessment, strategic planning and decision making to promote growth and profitability in China and is an essential tool for CEOs, Chairmen, Finance Directors/CFOs, Managing Directors, Marketing/Sales Directors with commercial interests in this emerging market.

An influential new analysis of China's economic, political and financial prospects through end-2018, just published by award-winning forecasters, Business Monitor International (BMI).

Key Uses

  • Forecast the pace and stability of China's economic and industry growth through end-2018.
  • Identify and evaluate adverse political and economic trends, to facilitate risk mitigation.
  • Assess the critical shortcomings of the business environment that pose hidden barriers and costs to corporate profitability.
  • Contextualise China's country risks against regional peers using BMI's country comparative Risk Rankings system.
  • Evaluate external threats to doing business in China, including currency volatility, the commodity price boom and protectionist policies.

The China Business Forecast Report by Business Monitor International (BMI) includes four major sections: Economic Outlook, Political Outlook, Business Environment and Key Sector Outlook.

Economic Outlook:

How will the China economic policy-making and performance impact on corporate profitability over 2014-2018?

BMI provides our fully independent 5-year forecasts for China through end-2018 for more than 50 economic and key industry indicators. We evaluate growth, and also forecast the impact of economic management.

Economic Outlook Contents

The China Business Forecast Report features BMI's forecasts with supporting analysis for 2014 through to end-2018, set against government views and BMI's evaluation of global and regional prospects.

Key Areas Covered:

Data:

  • Full 10-year forecasts with data - for key macroeconomic variables including GDP (real growth and per capita), population, inflation, current account balance and the exchange rate.
  • BMI's comprehensive Risk Rankings system - rates each country worldwide for economic and political risk, and rates the business environment, within a global and regional context.

Written Analysis:

  • Economic Activity - real GDP growth, employment, inflation, consumption (retail sales and confidence).
  • Balance of Payments - trade and investment, current and capital account.
  • Monetary Policy - interest rate trends (bank lending and deposit rates) and inflation (producer price and consumer price).
  • Exchange Rate Policy - currency controls, foreign investment flows, exchange rates and foreign exchange reserves.
  • Fiscal Policy - macroeconomic strategy and policies, government finance and tax reforms.
  • Foreign Direct Investment - approvals, inflows and climate.
  • External Debt - debt profile (short and long-term plus public and private sector exposure).
  • Global Assumptions - forecasts for each year to end-2018 covering: major commodities, growth in key regions, inflation, and interest and exchange rates, in the United States, Japan, China and the eurozone.

Key Benefits

  • Rely upon BMI's 100% independent forecast scenarios for China and underlying assumptions - we take no advertising and are privately-owned.
  • Exploit the benefits of BMI's comprehensive and reliable macroeconomic database on China, sourced and fully maintained by BMI from an extensive network of private sector, government and multilateral contacts.
  • Gain key insights into the current and future direction of government economic policy, which could significantly affect your company's business prospects, from BMI's team of analysts and economists.

Political Outlook:

What are the political risks to doing business in China over the next 5-years?

BMI's China country Risk Rankings evaluate the short- and medium-term threats to political stability.

Political Outlook Contents

  • SWOT Analysis for the China Market - Political Strengths, Weaknesses, Opportunities and Threats facing China.
  • Political Stability and Risk Assessment - BMI's Risk Rankings assess explicit short- and long-term risks to political stability; latest ankings, rankings and trends for China's risk are compared with regional and global averages.
  • Current Administration and Policy-making BMI assesses the threats to the continuity of economic policy, and likely changes to the business operating environment.

Key Benefits

  • Benchmark China's risk profile against its neighbours, the global and regional average, allowing easy comparison of risks between key business markets.
  • Identify, evaluate and anticipate political and security risks to the business environment, and to your company's current operations and future plans.
  • Gain valuable insights into government and policy-making, through BMI's specialist team of analysts and economists, and their network of private and public sector sources.

Business Environment

Business Environment Risk Rankings with SWOT Analysis - Business Environment Risk Rankings for China, benchmarked against rankings for regional neighbours.

Country Competitiveness - Competitiveness of China's business operating environment in supporting corporate growth and profitability, compared with regional neighbours.

Business Environment Contents

  • Domestic Environment - Transparency, cronyism and corruption; labour market flexibility; corporate tax burden; interest rate levels; sophistication of banking sector and stock market; levels of business confidence; infrastructure and IT.
  • Foreign Direct Investment - Analysis of foreign investment regime; foreign ownership laws; attractiveness of business environment to foreign investors.
  • Foreign Trade - Analysis of trading environment, government trade policy, liberalisation measures, tariffs and membership of trade areas.

Key Benefits

  • Assess your company's evolving exposure to country specific operational and business risks, using BMI's in-depth analysis of the legal and regulatory business environment.
  • Understand your market's comparative strengths and weaknesses in the key areas of commercial infrastructure and business institutions, using BMI's proprietary global Business Environment Risk Rankings.

Key Sector Outlook

Which industry sectors in China will grow fastest, and where are the major investment opportunities in the market?

BMI's identifies investment opportunities in China's high growth industries including automotives, defence & security, food & drink, freight transport, infrastructure, oil & gas, pharmaceuticals & healthcare and telecommunications & IT.

Key Areas Covered:

  • Market Overview - Size and value of each industry with developments over 2009-2013, covering major industry key performance indicators (KPIs) that have impacted company performance.
  • 5-year Industry Forecasts - Forecasts for each year over 2014-2018, using BMI's proprietary industry modeling technique, which incorporates all key domestic and international indicators - including economic growth, interest rates, exchange rate outlook, commodity prices and demographic trends - to provide fully integrated forecasts across, and within, each industry.
  • Demand- and Supply-Side Data/Forecasts - BMI's industry data covers both the output of each industry and the domestic demand, offering clear analysis of anticipated import/export trends, as well as capacity growth within each industry.

Key Benefits

  • Target strategic opportunities in high growth industries, which are benefiting from global mega trends, and thus offer strong investment and growth opportunities.
  • Compare the growth path of different industries to identify which are best placed to benefit from domestic and international economic prospects, and which have historically suffered from volatile growth trends - a key indicator of future risks.

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Testimonials

The sections that I find most interesting and useful are the macroeconomic data and forecasts for the country, top export destinations and economic activity. The indicators/analysis of these areas helps us orient our thinking, our assumptions and, consequently, our decisions in the commercial area.

Country Manager, DHL Express