China Economic Quarterly Q3 2017

Overall 2017 economy likely to outperform market expectations

The China Economic Quarterly is a market outlook prepared on a quarterly basis by PwC to share the latest economic and policy updates. This issue provides analysis of major economic data points in China for Q3 2017, summarises main policy developments and discusses hot topics of interest. In the third quarter, China's GDP growth slowed slightly as expected to 6.8%, partly due to the government's efforts to rein in property investment and debt risks.

Major economic indicators

Here are some highlights of the Q3 updates:

  • The economic growth rate in 2017 is likely to demonstrate a better performance than that of 2016 and beat the market expectation of 6.7% thanks to the strong contribution from the service sectors.
  • The International Monetary Fund (IMF) has upgraded its economic forecast for China to 6.8% and 6.5% for 2017 and 2018 respectively. This is the fourth time this year that the IMF has upgraded China's economic forecast.
  • As the national and local governments are stepping up their restrictive policies to further curb speculation, property sales might decrease in the fourth quarter and  next year.
  • Thanks to the moderate recovery of the global economy and fairly strong domestic demand, China's imports and exports had the best performance amongst all major economic indicators.

 

China’s quarterly policy updates

The 19th Party Congress

In October, China held the 19th National Congress of the Communist Party of China, which unveiled a new leadership line-up and set a long-term vision on China’s future development which has far reaching implications. On economic policy, the Party decided to pursue supply-side structural reform as the “main task” and work harder for better quality, higher efficiency and more robust drivers of economic growth through reform. It also called for new industrialisation, IT application, urbanisation, and agricultural modernisation to go hand in hand.

Encouraging entrepreneurship in China

On September 25, 2017, the Communist Party of China Central Committee and the State Council jointly issued a guideline on encouraging entrepreneurial spirit and creating a favourable environment for entrepreneurship. The guideline states that the government will protect the legal rights and interests of entrepreneurs, strengthen protection of intellectual property rights (IPR), fight against monopolies, unfair competition practices and regional protectionism, and remove regulations that undermine fair competition. The government will also introduce a negative list management programme nationwide to ensure fair access to industries and businesses that are not off-limits to market entities.

 

Hot topic analysis

How Fintech is Shaping China’s Financial Services

A new generation of information technology such as cloud computing, big data, artificial intelligence and blockchain has made great strides and set off a wave of financial technology (fintech) sweeping the globe.  

Going forward, we would like to suggest Chinese financial institutions to take the following actions on fintech innovation to reap the full benefits brought by fintech:

  • Formulate fintech driven top-level design program and incorporate it into
    long-term development strategies;
  • Build independent fintech innovation system and explore new mode of financial services;
  • Explore emerging technologies implementation roadmap, launch pilots of digital, intelligent transformation of the existing program; and
  • Focus on technology-driven capacity-building, effectively promote deep integration of finance and technology.

A Chinese perspective on rising commodity prices

During the first three quarters, rising commodity prices pushed up the value of China’s imports by more than 10% and contributed 52.5% to imports growth. As total imports were valued at 9.13 trillion yuan, a 10% price hike means 913 billion yuan or roughly US$138 billion. This is not a small amount for international commodity market, and it has brought dramatic impact on China’s economy. Going forward, however, continued increase in commodity prices might not be sustainable because of the change in China’s economic growth model.

The key message to the global commodity market is that in 2018 and the future years, China’s central government will tolerate a slower GDP growth rate, which is likely to stay above 6.8% in 2017. Going forward, however, the market should not be surprised if it drops to below 6.5% in the near future. Since China’s overall economic growth might be slower, its demand for commodities may decline, as China’s supply side reform progresses.

 

 

 

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Frank Lyn
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Elton Huang
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Elton Yeung
Strategy and Innovation Leader, PwC China and Hong Kong
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