2017 APEC CEO Survey - China Report

 

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Chinese firms seek growth through trade

The global business and trade environment is in flux. The US and Britain have disrupted long held free trade agreements and this rising economic nationalism is affecting business strategies and opportunities globally.

In light of global developments such as US’s exit from Trans-Pacific Partnership (TPP), China has emerged as the new leader for global trade and the voice of inclusive globalisation. As Chinese companies become more prominent globally, they are pursuing innovation and technological advancement due to an increasingly competitive domestic and international landscape.

With these evolving realities, PwC’s 2017 APEC CEO Survey asked 202 business leaders in mainland China and Hong Kong about their perception of trade trends, how businesses are organising themselves, their operational challenges, their outlook and expectations with new trade orientations.

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Key findings

Advantage China in global trade

PwC’s 2017 APEC CEO Survey found that Mainland China was the second popular choice to increase cross-border investments for 46% of the APEC executives surveyed. This intention can be operationalised as President Xi Jinping’s address at the 19th Party Congress announced easing market access, expansion of foreign trade, lowering entry barriers for foreign companies and protecting the legitimate rights and interests of foreign investors treating all businesses registered in China equally.

China’s enthusiasm in global trade is apparent. China and EU launched negotiations for an investment agreement in November 2013 while China is also leading an effort to unite 16 Asian economies (10 ASEAN economies and six other Asia Pacific economies including Australia, Japan and India) in a new trading arrangement through Regional Comprehensive Economic Partnership (RCEP).

This aligns well with China’s statement in the 13th Five Year Plan (FYP) to promote overseas collaboration and Chinese outbound investment to promote greater use of Chinese equipment, technology, standards and services in the international markets and help Chinese manufacturing brands gain wider international recognition.

China’s role in APEC is going to get more prominent as opportunities for exports and fixed asset investments emerge from the BRI initiatives. The BRI will pass through 11 APEC economies and once the vision is realized, the increased market access and connectivity will be a game changer.


Business confidence is recovering in China

PwC’s 2017 APEC CEO Survey found that 39% of the executives in China are “very confident” about their company’s prospects for revenue growth in the coming year. This is a considerable increase as compared to the last couple of years (24% in 2016 and 25% in 2015) as well as a slight improvement over overall APEC CEOs surveyed (37%).

To drive their growth strategy, 81% of executives in China were “just as confident or more confident” about launching a new product or service or entering a new line of business, 74% were confident about expanding operations in Asia Pacific economies and 67% were confident about securing the talent and skills needed to perform globally.

To capitalise on new opportunities, 57% of executives in China considered developing new products and services for existing markets in China as a top strategy for their organisation to undertake over the next three years.

42% considered building their brand in China and 50% of executives considered increasing collaboration with partners as primary growth strategies. When considering to enter into a strategic partnership/joint venture, the most important attributes that executives in China are looking for are product / service quality and price, followed by managerial talent and transparent governance and operations.

Growth driven by intra-regional trade undermined by trade barriers

Global investment intentions of businesses in China continue to remain strong for the next 12 months with APEC economies attracting a significant share of that new investment. While 55% of executives surveyed in China in 2017 plan to increase their global investments in the next 12 months, 70% want to direct this new investment in the coming year in APEC.

To drive their overseas growth ambitions, 72% of executives surveyed in China said they rely, to a “great extent” or “some extent”, on business partnerships/joint ventures to secure growth in overseas markets while 65% of the executives rely on more value-add activities domestically such as R&D.

In terms of barriers arising in global trade environment, 33% of executives in China expect an increase in barriers to employ foreign labour in the coming year as compared to 24% of the executives perceiving this barrier in the last 12 months. An increase in barriers to move data across borders, providing or receiving services across borders and to invest in another economy were the other barriers cited by the executives surveyed in China.

There is an expectation that TPP 11 which was secured in Da Nang in Vietnam will lead to lowered trade barriers amongst the 11 economies in the medium term as the details are agreed upon. Similarly, the China led RCEP is also expected to announce increasing market access amongst 16 economies in the near future.

Digital transition in the workplace

China’s emergence as a global technology and innovation powerhouse is evident as it climbed up the Global Innovation Index rankings from 25 in 2016 to 22 in 2017 in the space of one year. Meanwhile, in 2017, Hong Kong is at 16th position. This is a welcome endorsement for China as it moves away from its “copycat” image to dominate areas of technology and innovation such as payments, drone manufacturing and artificial intelligence.

According to PwC’s 2017 APEC CEO Survey, the percentage of executives in China “automating certain functions in their organisation” will increase from 64% today to 83% in three years. As is evident, emerging technologies are impacting the workforce as some jobs have been displaced while many new employment opportunities have also been created. About 51% of executives in China expect to move to new structures of employment including more ‘gig’ talent and outsourced labour in three years from 31% of the executives today.

Moreover, the percentage of executives in China willing to invest in wholesale training of workforce in ways to use data will increase from 34% today to 62% in three years. In China, 55% of the executives recognise that increasing business investment in employees’ continuous learning is the most effective way to help workers adapt to an era of greater automation and jobs rebalancing.

What are the implications of these survey findings for businesses and policy makers?

For business

  • Despite expanding their business presence, firms in China face increased trade barriers such as restricted mobility in labour, goods, services and data.
  • New measures announced by President Xi on deepening supply-side structural reforms, cutting over capacity and excess inventory to improve allocation of resources should bring relief to the private sector.
  • Business confidence is recovering. Our Survey found that 39% of the executives in China are “very confident” about their company’s prospects for revenue growth in the next 12 months compared to 24% who reported the same in 2016.
  • Technology enabled transformations is leading to growth for companies in China. Instead of thinking about jobs lost to automation, companies should be actively investing in workers so that jobs are gained from automation.
  • The partnership between the private sector and educational institutions is critical to redefine education and training.

For policy makers

  • Executives in China expect APEC governments and institutions to play a larger role in facilitating economic growth and cooperation for the region.
  • All stakeholders, including policy makers, have a responsibility to lead through the technological innovations by exercising long term vision and governance to balance competing interests. 
  • As China’s engagement increases in APEC economies, it may have influence on new rules of engagement in key public policies in areas such as data privacy, cyber security, innovation in APEC economies.

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Frank Lyn
China and Hong Kong Markets Leader
Tel: +[86] (10) 6533 2388
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