The China Economic Quarterly is a market outlook prepared by PwC China and Hong Kong on a quarterly basis to share the latest economic and policy updates. This issue provides an overview of the macroeconomic trends in Q2 2018, and policy insights based on China’s further opening-up to foreign investment, the country’s proactive fiscal policy and prudent monetary policy, as well as an in-depth analysis on the outlook of the renminbi (RMB) exchange rate in the second half of 2018.
Here are some highlights of the Q2 updates:
China is opening up more sectors for foreign investment, particularly financial services and automobiles
China’s National Development and Reform Commission (NDRC) and the Ministry of Commerce jointly released the latest shortened negative list for foreign investment at the end of June. Under the negative list-based approach, foreign investment in the fields not subject to the negative list, will be administered by ‘filing for record’ management. The number of items on the new negative list were cut from 63 to 48, and 22 sectors including financial services, transportation, professional services, infrastructure, energy, resources, and agriculture are now either more or fully open to foreign investment.
China’s proactive fiscal policy and prudent monetary policy will be more forward-looking, flexible and effective
On 31 July, China’s top leaders said fiscal policy needs to play a more effective role in boosting domestic demand and structural re-adjustment, and monetary policy needs to keep liquidity at a reasonable and ample level.
Other economic policies that have been emphasised include:
The outlook of renminbi (RMB) exchange rate in the second half of 2018
The renminbi (RMB) exchange rate against the US dollar (USD) has declined sharply since mid-June due to factors such as the interest rate hike by the US Federal Reserve, the strong USD Index, China-US trade friction and the volatility of the Chinese stock market. If the US government collects additional tariffs on US$200 billion worth of Chinese products and if China retaliates to a greater degree, the exchange rate may fluctuate even more.
Our expectation is that the frequent two-way fluctuation of RMB exchange rates against the currencies of key developed economies, including the USD, will become more regular, and the China-US trade friction will also evolve into an important breaking point that can test the market-based RMB exchange rate formation mechanism in the medium and long run.
China Central Markets Leader and China and Hong Kong Entrepreneurial and Private Business Co-Leader, PwC China
Tel: + (21) 2323 3029
Strategy and Innovation Leader, PwC China
Tel: + (10) 6533 8008