2018 APEC CEO Survey - China Report

Resilience and digital readiness in a trade-disrupted world

The global trade environment is in a state of flux. Headlines of evolving trade tensions between the world’s two largest economies have dominated media space and added to the complexity of business environment in Asia Pacific, where over 60% of global trade activities take place.  

Business leaders in the region were caught off guard not only by the degree and scope of impact from the trade complexity, but also by the speed at which new events were unfolding on the trade front. The prevailing trade rules were being challenged and old business models were being displaced by new thinking.

China, in particular, is at the epicentre of the trade-induced shock waves. Since the onset of the Sino-US trade disputes earlier this year, the Chinese economy has experienced some setback in response to US inflicted trade sanctions. In October, the People’s Bank of China has lowered the required reserve ratio for most banks by 100 basis points1 to combat market liquidity crunch and slowing GDP growth rate in Q3 (6.5% pa), not to mention the continued weakness of the Chinese yuan and rising level of foreign debts owed by corporations.

The trade conflict has also hurt investor confidence, affected consumer purchasing behaviour, and heightened urge for safeguarding against financial risks, while restricting two-way investment and M&A activities between China and the US, a recent PwC study has shown.2

 

Despite all the economic jitters, Chinese companies at large have quickly reassessed the situation and demonstrated resilience in coping with the new host of challenges, as seen in their optimism in revenue opportunities and readiness to adopt new changes, even if it means reinventing their business models.

In last year’s report we explored the opportunities and challenges presented to Chinese firms amid the new economic reality as China transitions to taking on a more prominent role on the world’s stage. This year we rescanned the environment to test the validity of the trade rhetoric and what has really changed in the minds of business leaders.

Apart from an overview of business confidence and investment orientation, we also probe into what new opportunities are arising from global trade; where businesses situate along the curve of digital maturity; how government initiatives are driving corporate strategies, and above all else how businesses are building resilience and agility to stay competitive.

1 People’s Bank of China
2 What China-US trade tensions mean for Chinese economy and business?
 

Regardless of actual outcome of the trade situation, the landscape of the global economy and commercial environment has been reformatted, calling for new business models that are anti-fragile to external shocks. Realising they are in a very different game than they were just a year ago, businesses will need to conduct risk assessment more frequently and learn to become comfortable with uncertainty. Those who have greater corporate resilience, digital readiness, and strategic compatibility with the country’s policy direction, are poised to fare better in the new economic reality.

What are the implications?

For policy makers

  • The trade debate has exposed the fundamental issue of economic imbalances amongst nations, and prompted China to revisit its international relations and economic ties within and beyond APEC. As an advocate of globalisation it is time for China to strengthen those connections especially along the belt and road countries and regions.
  • Growing the domestic market is a long-term remedy to trade protectionism. While the trade talk is still export-driven at this stage, policy makers should buy time to deepen structural reforms to stimulate aggregate demand, thereby tapping into the country’s high saving rate and dormant spending power to compensate for the reduction in export.
  • Government support is the key determinant in driving forward the digital agenda for the private sector. In coming years policy makers have more to do in terms of building the required data infrastructure, raising standards for data and privacy protection, as well as improving the digital talent pipeline through training more STEM professionals.

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For businesses

  • Due to the persistent nature of the trade conflicts, companies that are heavily reliant on US-imported core technologies need to consider alternative solutions while strengthening their own capabilities in research and development.
  • Businesses must be alert to their vulnerability in the global value chain and prioritise resources to accelerate the pace of industrial upgrading. They have urgency to shift away from price competition and upgrade their products and services leveraging on brand and quality.
  • Digital transformation and adoption of emerging technologies are crucial to driving competiveness in businesses, so is the speed at which digitisation is taking place. Chinese firms need to address their weak links and restore their digital confidence across multiple areas.
  • Domestic businesses are encouraged to venture outward for growth opportunities arising from new bilateral and multilateral agreements, and capitalise on government led initiatives. APEC is still of strategic importance to companies planning to diversify their outbound investment or relocating their operation.

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Contact us

Frank Lyn

China and Hong Kong Markets Leader, PwC China

Tel: +[86] (10) 6533 2388

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