PwC launch 2018 APEC CEO Survey China Report

Chinese companies are adapting to new changes and responding to revenue prospects

Beijing, 15 November 2018 - According to PwC’s 2018 APEC CEO Survey China Report; ‘Resilience and digital readiness in a trade-disrupted world’, 31% of executives surveyed in China (APEC: 35%) were very confident about their organisation’s prospects for revenue growth over the next 12 months. Despite economic jitters, Chinese companies at large have quickly reassessed the situation and reacted to the array of new challenges, including by reinventing their business models.

PwC conducted the survey just prior to the APEC CEO Summit, which takes place this week in Port Moresby, Papua New Guinea. The report is informed by interviews with 1189 business leaders across the 21 Asia-Pacific Economic Co-operation (APEC) economies.

When considering organisational cross-border activities, 29% of Chinese executives are anticipating an increase in barriers to moving goods across borders over the next 12 months, compared to 19% who felt the same 12 months ago. Additionally, 29% of Chinese businesses are expecting to see revenue opportunities over the period. In particular, respondents recognise the efficacy in China’s diplomatic approach of seeking new allies in trade, and forging closer economic ties with countries like Russia, Japan, and India as well as nations in Africa.

“While business leaders do not like uncertainty in any aspect of business, let alone flows of trade, they are learning to adapt to the new reality and finding ways to grow and thrive,” said Raymund Chao, Chairman of PwC Asia Pacific and Greater China.  “While around a fifth of the business leaders we spoke to had experienced new barriers to trade this year the number of CEOs who are seeing new opportunities coming out of the new trade arrangements has doubled over last year.  While there are winners and losers in any trade war, our research clearly shows that businesses are uncovering new paths to growth”.

Of note, there was a reduction in the proportion of Chinese executives planning to increase their net investment globally in the coming year, with 46% in 2018, compared to 55% last year. The appreciable decline is attributable to high uncertainty of economic consequences arising from the Sino-US trade dispute. Nevertheless, in the eyes of APEC investors, China still maintained its position as the second most attractive destination for planned increases in cross-border investments over the next 12 months, ahead of the US, Australia, and Thailand. Vietnam retained the top spot. 

The Sino-US trade dispute has also been an impetus for companies to seek opportunities in other APEC economies along the belt and road. A considerable proportion of Chinese companies think their growth strategies are inherently linked to government-led programmes such as Great Bay Areas (69%), Belt and Road Initiatives (66%), smart manufacturing / Made in China 2015 (61%), Shenzhen Economic Zone (61%) and centralisation of regulatory oversight (61%).

The scalability of the “new economy” depends on the country’s millions of start-ups and entrepreneurs. In total, 27% of Chinese executives are currently investing in start-up businesses. In addition to mainland China and the US, where the largest number of unicorns are located, Hong Kong (like Australia, Singapore and Japan) is one of the most conducive environments for hosting the next wave of unicorn growth.

In assessing their own business competitiveness, only 5% of Chinese firms considered themselves to be digital leaders, (compared with 27% in US). Further, when asked for their self-assessment of performance in building artificial intelligence into products over the last two years, only 7% of Chinese executives stated they are highly competitive.  As many as 41% indicated they are not making use of AI technologies at all in their products.

APEC business leaders are also very well aware of the need to invest more in becoming digital.  With the internet economy projected to reach over US$200 billion in Southeast Asia alone by 2025, the top investment priority for business leaders is digital customer interaction. This is closely followed by digital skills for their workforce.  

Adding to the lack of confidence is the perception that the shortage of STEM professionals is not being adequately addressed by the public sector. Currently only 8% of Chinese executives think the government is doing enough to train STEM professionals, much lower than the APEC average of 14%.

PwC Mainland China and Hong Kong markets leader Frank Lyn said “From ‘0’ to ‘56789’; this is a vivid description of the economic development of private enterprises over the last 40 years. It highlights the outstanding contribution private businesses have made to the national economy. And yet, private businesses have had to bear the brunt of intensifying trade frictions so far. Strong support by the government via tax, financing and business is key for promoting ongoing development of private businesses. These instrumental companies will need to conduct risk assessments more frequently, and get used to uncertainty with greater corporate resilience and digital readiness. We also encourage domestic companies to go continue to go out, and seek new growth opportunities through new bilateral and mutually beneficial agreements.”

 

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Christy Liang

Senior Manager, PwC China

Tel: +[86] (10) 6533 8708

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