Deloitte says continuous reform and transformation to render strong Chinese performance

More innovation,
fewer restrictions and fairer competition are key to Chinese economic growth

HONG KONG, CHINA – Media OutReach – 23 October 2018 – In 2017, the fourth year of its ‘New Normal’,
the Chinese economy maintained stable growth while seeking stronger momentum
from innovation and industrial upgrading. With 2018 marking the 40^th
year of reform and opening-up, changes to China’s economic landscape will
continue to foster a world-class business environment by incentivizing
innovation, lowering barriers to market entry and promoting fairer competition
among all players, according to Deloitte’s 2018 China
Factors — A guide for investing in China.

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China Factors is
a publication of the Deloitte Global Chinese Services Group (GCSG), which advises Chinese companies expanding their global
presence and multinational companies operating in China. In this latest edition,
GCSG delves deeper into the local market landscape, analyzing key industries
offering potentially lucrative opportunities for foreign investment.

 

The Chinese economy is likely to
decelerate in 2018, and possibly in 2019, due to a slew of factors, Deloitte
forecasts.

 

“Preventing
financial sector risks has been one of top items on the policy agenda in recent
years; therefore, to rein in credit growth, which means tolerating a slower GDP
growth target, is necessary. We expect policymakers to de-emphasize the GDP
growth target. As such, policymakers will increase their policy leeway in order
to undertake deleveraging initiatives and SOE reforms,” says Deloitte China Chief Economist Sitao Xu.

 

Opportunities
will continue to abound in several growing sectors. Confident consumers,
combined with consumption upgrading supported by economic transformation, will
bring more opportunities in retail. Meanwhile, technological innovations,
especially artificial intelligence and internet plus, are prompting faster
growth in emerging sectors. The closely watched 19^th Party Congress
in October 2017 reemphasized China’s commitment to building a more conducive
environment for technology, adding further rigor to an already dynamic tech
sector. That said, rising global protectionism and China-US trade friction are
casting a shadow over exports, China’s traditional growth driver. Tariff hikes
are piling pressure on China to further open up its domestic market, especially
in the manufacturing, auto, service and financial sectors, making it difficult
for companies to make key decisions, particular on their supply chains. It is not only the US putting pressure on China
to level the playing field, concerns about market access reciprocity are
widespread.

 

“The best policy response would not
be tit-for-tat tariffs but rather concrete steps in opening up domestic markets,
service sectors in particular, within a clearly defined timetable. At the same
time, improved market access will also defuse trade tensions,” adds Xu.

 

The Chinese
government is committed to improving the investment environment. Several laws have been amended to improve
conditions for foreign investors, with a raft of policies and measures
formulated to level the playing field between domestic and overseas businesses.
Opening-up is
also expanding from pilot zones to other cities and China’s hinterlands. The Guangdong-Hong Kong-Macao Greater Bay Area
(GBA) and Belt and Road Initiative (BRI) are also providing new access points
for foreign investors eying China.

 

According to the
guide, emerging technologies and innovation will drive the development of most
industries. With the support of the Chinese government, the AI industry will
redouble its efforts, aiming to create a USD150 billion market by 2030. In the
media sector, China will continue to be the top market for live streaming,
attracting an estimated 456 million viewers and USD4.4 billion in revenue in
2018. Meanwhile, 5G will be fast-tracked, with an expected launch in 2020
accruing one billion Chinese users by 2023.

 

Online retail,
driven by a consumption boom, grew 28% in 2017, and its penetration rate is
expected to exceed 20% by 2020. Smart manufacturing, with an additional 100
pilot demonstration projects, is well on track to achieve the targeted RMB3
billion by 2020. As technology becomes deeply entrenched in every industry, the
amount of user data will increase with startling speed.

 

“The sheer
volume of data can be a distinct advantage but also a challenge. Considering
China’s population and the scale of its manufacturing industry, Chinese
enterprises have natural advantages. For example, advances in machine learning
are heavily reliant on data volume. However, capitalizing on that data is
another matter. Companies should work closely with data analytics specialists
to figure out customized solutions,” explains Deloitte Global Chinese Services Group Partner Johnny Zhang

 

As well as
industry outlooks, the guide book also features a collection of regional
economic indicators for quick reference, covering Beijing, Tianjin, Liaoning,
Heilongjiang, Shanghai, Shandong, Jiangsu, Zhejiang, Hubei, Sichuan, Chongqing,
Guangdong, and Fujian. It also briefly discusses inbound investment-related tax
issues and preferential tax treatments under the Enterprise Income Tax Law.

 

 

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About Deloitte
China

The Deloitte brand first came
to China in 1917 when a Deloitte office was opened in Shanghai. Now the
Deloitte China network of firms, backed by the global Deloitte network, deliver
a full range of audit & assurance, consulting, financial advisory, risk advisory
and tax services to local, multinational and growth enterprise clients in
China. We have considerable experience in China and have been a significant
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and local professional accountants. To learn more about how Deloitte makes an
impact that matters in the China marketplace, please connect with our Deloitte
China social media platforms via www2.deloitte.com/cn/en/social-media.

 

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contact Deloitte China.