Regional Analysis 2020

China and Taiwan R.O.C Market Review 2020

2019 marked China's weakest economic growth in 29 years, but it is still a top performer amongst comparable economies.

6.1%
GDP growth in 2019
5.9%
GDP growth expected in 2020

China Market Review

Economic overview

In 2019, the Chinese economy grew by 6.1%, marking its weakest expansion in 29 years, but is still a top performer among comparable economies. GDP growth is forecasted to contract to 5.9% in 2020, and further to 5.7% in 2021. 

The US-China trade war has had a considerable impact on the global economy, but recent developments have been positive. Phase one of the US-China trade deal was signed on January 2020, removing pressure on China to address structural issues such as the protection of intellectual property and subsidies for state-owned enterprises, as well as the risk of higher US tariffs. The trade tensions have, however, prompted China to become more self-reliant, with the Government keen to lessen the domestic dependence on imported components in industrial output, especially in the technology sector. Guangdong-Hong Kong-Macao Greater Bay Area (GBA) is an important national economic development strategy for China, developing the Greater Bay Area into an international innovation and technology hub with global influence.

The Ministry of Commerce reported a year-on-year increase in FDI of 6.5% in the first three quarters of 2019. This is driven by the Foreign Investment Law, which came into effect on 1st January 2020. It aims to level the rights between domestic and foreign investors in China, and provide equal protections. China will end ownership limits for foreign investors in its financial sector in 2020, a year earlier than scheduled. It will also further open its manufacturing sector, including the auto industry, while reducing its negative investment list that restricts foreign investment in some areas. Next year, the Government will also reduce restrictions on market access for foreign investors in the value-added telecoms services and transport sectors. 

In the labour force, the Chinese working-age population is declining, and the elderly population is rising. This presents a challenge for China, facing some key issues that Japan has already experienced due to an aging population - slow economic growth, excess capacity, very low inflation, and a shortage of labour.

Construction

Construction output in in 2019 was 24.7 trillion RMB, contributing 6.8% of overall GDP. This follows a decline of 4.8% from 2018, with a further 5.1% decline expected for 2020. There has been a slowdown in investment in infrastructure, but relative stability for railway, highway, metro and environmental protection. In 2020, the Chinese Government will continue to apply monetary policy (reverse repurchasing) to maintain stable growth in infrastructure. Other sectors within real estate, however, such as commercial development, residential and retail are likely to experience a downturn. 

Construction cost escalation in the major cities is slowing down. Having stood at 9% in 2017 and falling to 4.3% in 2018, costs were relatively stable in 2019, but are expected to increase marginally again in 2020.

The labour shortage in construction is expected to drive the wage rate upwards, and this is being exacerbated by the emigration of domestic resources to take up overseas construction work.

In summary, China face will continue to face uncertainty due to the US-China trade war, but with a more open policy towards foreign investment and an inclination to work with other countries under the Belt and Road Policy, we remain positive about the outlook for China. 

Contributor: Helen Jie Shao

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