Latest Economic and Trade information on China (continued series on China)

Latest Economic and Trade information on China (continued series on China)

Latest Developments:

–        China’s GDP grew by 6.7% in the first quarter of 2016.

–        The added-value industrial output grew by 6% in May 2016.

–         Fixed assets investment grew by 9.6% in Jan-May 2016.

–        Retail sales increased by 10 % (9.7 % in real terms) in May 2016.

–        Inflation lowered to 2 % in May 2016.

–        In May 2016, exports (in terms of USD) declined by 4.1 %, while imports (in terms of USD) declined by 0.4 %, resulting in a trade surplus of USD 49.9 billion.

–         The Manufacturing Purchasing Managers’ Index remained at 50.1 in May 2016

Trade in China 1

Current Economic Development

The Chinese economy grew by 9.3 % in 2011 and slowed to 7.7 % in both 2012 and 2013. In 2014, GDP grew by 7.3 %. In the four quarters of 2015, GDP grew by 7 %, 7 %, 6.9 % and 6.8 % respectively, resulting in an average growth of 6.9 % for 2015. Per capita GDP reached RMB49,351 in 2015. In the first quarter of 2016, GDP grew by 6.7 %.

After reducing the reserve requirement ratio five times in 2015, the PBOC cut the reserve requirement by 0.5 percentage points again on March 1, 2016. The base lending rates were cut by 0.25 percentage points each on March 1, 2015, May 11, 2015, June 28, 2015, August 26, 2015 and October 24, 2015.

Added-value of industrial output (by large enterprises with annual sales exceeding RMB20 million) grew by 8.3 % in 2014 and slowed to 6.1 % in 2015. In Jan-May 2016, added-value of industrial output grew by 5.9 % with foreign-invested enterprises grew by 3.1 %.

China Economics 2

In 2014, consumer price index (CPI) increased by 2 % with food prices increased by 3.1 % and non-food prices up by 1.4 %. In 2015, CPI went up by 1.4 % with food prices up by 2.3 % and non-food prices up by 1 %. In May 2016, CPI went up by 2 % with food prices up by 5.9 % and non-food prices up by 1.1 %.

In 2014, retail sales grew by 12 % (real growth at 10.9 %). In 2015, retail sales grew by 10.7 % (real growth at 10.6%). In Jan-May 2016, retail sales increased by 10.2 % with sales of household electrical appliances growing at 6.1 %, garments & footwear at 7 %, furniture at 16.1 %, automobiles at 7.3 % and jewellery declined by 2 %.

China’s Manufacturing Purchasing Managers’ Index (PMI) (compiled by China Federation of Logistics & Purchasing and China Logistics Information Centre) remained at 50.1 in May 2016.

Money supply – total loan grew at 13.1 % in April 2016 compared to 13.4 % in March and the growth rate of RMB loans slowed to 14.4 % in April 2016 from 14.7 % in March.

China’s non-state sector expands rapidly and experiences healthy development in recent years. The status and economic contribution of private enterprises received official recognition in the 9th National People’s Congress held in March 1999. By the end of 2015, there were 19.08 million private-owned enterprises (comparing to 845,520 at end-2010).

Beginning July 21. 2005, China reformed the Renminbi (RMB) exchange rate regime by moving into a managed floating exchange rate system with reference to a basket of currencies, and the exchange rate of RMB was re-valued to 8.11 per USD on July 21, 2005. On 21 May 2007, the floating band of RMB against the US dollar was enlarged from 0.3 % to 0.5 % around the central parity published by the People’s Bank of China (PBOC) on each working day. On April 16, 2012, the floating band was expanded to 1 % and since March17, 2014, the floating band has been further expended to 2 %. As PBOC modified the RMB exchange rate fixing mechanism, on August 13, 2015, the exchange rate of RMB depreciated to 6.3982 per USD from 6.2083 on August 10, 2015. On June 9, May 2016, the exchange rate per USD stood at 6.5624

China’s foreign exchange reserves stood at USD 3191.7 billion by the end of May 2016, the largest in the world. Foreign debts amounted to USD 1416 billion at the end of 2015, of which 35 % was medium- or long-term debts and 65 % was short-term debts. The debt service ratio stood at 5 % in 2015.

Foreign Trade and Investment

In 2015, China’s total external trade reached USD 3956 billion, ranked the first in the world. In 2015, exports and imports dropped by 2.9 % and 14.1 % (in terms of USD) respectively, resulting in a trade surplus of USD 594.1 billion.

China Economics 3

 

The share of export-processing trade is declining in recent years. Export-processing trade accounted for 51 % of China’s total exports in 2007, but dropped to 35 % in 2015. In 2015, exports of processing trade dropped by 9.8 % while imports declined by 14.8 %.

In 2015, exports of electrical and electronic products grew by 0.1 % (In USD terms), exports of garment and footwear dropped by 6.4 % and 4.8 % respectively. In Jan-May 2016, exports of electrical and electronic products dropped by 7.9 % (In USD terms), exports of garment and footwear dropped by 3.6 % and 8.7 % respectively.

In 2015, China’s top ten export markets were US, Hong Kong, Japan, South Korea, Germany, Vietnam, UK, Netherlands, India and Singapore. China’s total exports with these ten economies together accounted for about 59 % of China’s total exports in 2015.

In 2015, FIEs exports of foreign-invested enterprises declined by 6.5 %, accounting for 44.2 % of China’s total exports, and imports dropped by 8.7 %, representing 49.3 % of China’s total imports.

By the end of 2015, China approved a cumulative of 836,404 foreign investment projects, with actual utilized overseas FDI amounting to USD 1639 billion. The leading sources of investment included Hong Kong, Taiwan, Japan, Singapore, the US, South Korea, UK and Germany.

 China Economics 4

In 2014, FDI made by Chinese enterprises in overseas markets stood at USD 123.1 billion (+14.2 %). As at end-2014, China’s stock of outward FDI reached USD 882.6 billion. In 2015, China’s outward FDI (non-financial sectors) grew by 14.7 % to USD 118 billion. Business services (mainly investment holdings), wholesale and retail, mining and manufacturing are the leading sectors (non-financial sectors) of China’s outward FDI.

Economic Relations with Hong Kong

The Chinese mainland and Hong Kong signed the Closer Economic Partnership Arrangement (CEPA) on June 29, 2003 and supplemented with further liberalisation measures in subsequent years. At present, all products of Hong Kong origin can be imported into the mainland tariff free under CEPA. For products which have no agreed CEPA rules of origin at present, Hong Kong will initiate discussions with the mainland twice a year upon requests by local manufacturers. Hong Kong service suppliers enjoy preferential treatment in entering into the mainland market in various service areas. There are also agreements or arrangements on mutual recognition of professional qualification. On December 18, 2014, the Agreement on Achieving Basic Liberalization of Trade in Services in Guangdong was signed and to be implemented on March 1, 2015. The Agreement adopts a hybrid approach of positive and negative lists to set out the liberalisation measures in the Guangdong province applying to Hong Kong. The breadth and depth of liberalization surpass the previous measures for early and pilot implementation in Guangdong. On the basis of the Guangdong Agreement, the Agreement on Trade in Services was signed on November 27, 2015 and to be implemented on June 1, 2016, extending the geographical coverage to the whole Mainland for basic liberalisation of trade in services.

China Economics 5

Hong Kong is the largest source of overseas direct investment in the Chinese Mainland. By the end of 2015, among all the overseas-funded projects approved in the Chinese Mainland, 44.7 % were tied to Hong Kong interests. Cumulative utilized capital inflow from Hong Kong amounted to USD 832.3 billion, accounting for 50.8 % of the national total. Hong Kong is also the leading destination for China’s FDI outflow. According to Chinese statistics, by 2014, the stock of FDI going to Hong Kong accumulated to USD 509.9 billion, or 57.8 % of the total outflow of FDI.

Chinese Mainland is one of the leading sources of inward investment in Hong Kong. According Hong Kong statistics, the stock of Hong Kong’s inward investment from the Chinese mainland amounted to USD 448 billion at market value or 30.1 % of the total at the end of 2014. As of December 2015, 951 mainland companies were listed in Hong Kong, comprising H-share, red-chip and private companies with total market capitalization of USD 1.97 trillion, or 62.1 % of the market total.

Hong Kong’s Trade with the Chinese Mainland 

Hong Kong was the Mainland’s second largest trading partner (after the US) in 2015. According to China’s Customs Statistics, bilateral trade between the Mainland and Hong Kong amounted to USD 344 billion (8.7 % of the Mainland’s total external trade) in 2015. Of which exports from the Chinese Mainland to Hong Kong stood at USD 332 billion, making Hong Kong the second largest export market.

China Economics 6

The Mainland has been Hong Kong’s largest trading partner since 1985. Share of the Mainland in Hong Kong’s global trade jumped from 9.3 % in 1978 to 51.2 % in 2015. The Chinese Mainland was Hong Kong’s largest import source accounting for 49 % of Hong Kong’s total imports, and the largest export market accounting for 53.7 % of Hong Kong’s total exports in 2015.

HK Exports 1

Hong Kong’s trade with the Chinese Mainland is to a large extent related to outward processing activities. In 2015, 28.5 % of Hong Kong’s total exports to the Chinese Mainland were related to outward processing activities. Meanwhile, 39.7 % of Hong Kong’s imports from the Mainland and 71.8 % of Hong Kong’s re-exports of the Mainland origin to all countries were related to outward processing.

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