1、0 2015 KPMG,a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rightsreserved. China Economic Monitor Q4 2018 November 2018 Executive summary Economic outlook Production
2、growth weakened and economic activities remained largely stable Growth in manufacturing investment rebounded, and infrastructure investment is expected to stabilise Consumption growth dragged down by sluggish automobile sales Corporate financing remained tight and inflation pressure muted Export gro
3、wth expected to slow and RMB depreciation pressure lingering Policy review Shanghai-London Stock Connect set to open soon E-commerce Law passed CRS information exchange initiated in Mainland China Regulation passed to further reduce debt levels of SOEs Special topic: CFIUS reform and Chinese investm
4、ent in the US Review of changes in Chinese direct investment in the US Breakdown of CFIUS reviews of direct investment by Chinese enterprises Overview of key CFIUS reform measures Implications for Chinese companies investing in the US Contents 11 2 2 3 3 2 4 5 8 10 12 14 15 16 20 23 29 32 34 37 39 4
5、2 43 Appendix: Key indicators 2 2018KPMG,a China partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), aSwiss entity. All rightsreserved. Both external and domestic environment remains challenging in Q3. T
6、he escalation in US-China trade frictions brought more uncertainty, increasing overseas concerns about growth momentum of the Chinese economy. Although downward pressure has increased, Chinas economic performance has remained largely stable. GDP grew by 6.5% in Q3 and 6.7% year to date, ahead of the
7、 governments annual growth target of 6.5%. Domestic production and demand weakened in Q3. In terms of production, the added value of industrial production increased by 6.4% year-on-year (YOY) from January to September, down 0.3 percentage points from the pace seen in the first half of the year (H1).
8、 The monthly growth rate in September fell below 6%, the first time in recent years excluding the seasonal fluctuations around the Chinese New Year. On the demand side, growth in consumption continued its slow downward trend. From January to September, the nominal and actual growth rates of retail s
9、ales stood at 9.3% and 7.4%, respectively, down 0.1 and 0.3 percentage points from H1. Infrastructure investment continued to drag down the growth in fixed asset investment. From January to September, fixed asset investment increased by 5.4% YOY, 0.6 percentage points slower than H1. Growth in expor
10、ts remained strong. The growth rate of exports to the US stayed at double digits for five consecutive months. However, it is mainly caused by Chinese companies trying to pull forward exports to the US to avoid future tariff increases. This should increase the downward pressure on exports in 2019. Ex
11、ternally, US-China trade frictions continued to escalate. After the US government imposed additional tariffs on USD34 billion and USD16 billion worth of Chinese exports in July and August, respectively, it announced a further 10% increase in tariffs on Chinese imports of USD200 billion in September,
12、 which is scheduled to be raised to 25% on January 1, 2019. In its latest World Economic Outlook, the IMF lowered its expectation for global economic growth for this year and 2019, and pointed out that the current global economic expansion has weakened and the possibility of shocks has increased. Sl
13、owed global economic growth would dampen Chinese exports. Current downward pressures on Chinas economy are mainly coming from two fronts: the escalation in US- China trade frictions, in conjunction with deleveraging policies on infrastructure investment and financing conditions. During its meeting o
14、n July 31, the Political Bureau of the Central Committee (Politburo) pointed out that Chinas economy is still stable but is also experiencing significant changes, especially from the external environment. It calls for fiscal and monetary policies to work together to ensure that economic growth remai
15、ns within a reasonable range. In addition, the Politburo emphasizes keeping employment, finance, foreign trade, foreign investment, domestic investment, and market expectations stable. In terms of fiscal policy, tax reductions have gradually shown their impacts. In September, the YOY growth of domes
16、tic value-added tax (VAT) revenue turned to negative (-1.2%), which was the first decline since March 2016. The growth rate of corporate income tax has also slowed, and the tax burden of enterprises has lessened. At the same time, there has been a clear acceleration in the issuance of special local
17、government bonds, supporting fiscal expenditure. According to Wind statistics, the issuance of special local government bonds reached RMB121.4 billion in July, RMB444.8 billion in August, and RMB671.3 billion in September. As of the end of September, 95% of the full years issuances had been reached.
18、 In September, national fiscal spending increased by 11.7% YOY, significantly higher than the 3.3% growth rate posted in August. In particular, there was a strong increase in infrastructure spending in agriculture, forestry and water (43.4%), urban and rural communities (30.9%), and transportation (
19、16.9%). In terms of monetary policy, on October 7, the Peoples Bank of China (PBOC) announced a 1 percentage point reduction on Reserve Requirement Ratio (RRR), which released an estimated RMB750 billion to boost the real economy and increase support for small, private and innovative enterprises. Co
20、mpared with the previous liquidity injections through open market operations, this RRR cut will help release long-term funds and ease financing pressure. In addition, on October 22, PBOC issued two policy measures aimed at supporting the financing of small and private enterprises. First, an addition
21、al RMB150 billion of re-lending and re- discounting quota will be added to support the credit supply to small and micro enterprises. Second, PBOC will issue guidance to set up tools to support bond financing for private enterprises, especially to those facing temporary difficulties but with promisin
22、g growth potentials or competitive technologies. Executive Summary 3 2018KPMG,a China partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), aSwiss entity. All rightsreserved. During a visit to Liaoning pro
23、vince at the end of September, Chinese President Xi Jinping reiterated the governments unabated encouragement, support and guidance to the development of the private economy. He called on focusing on solving practical problems, and better implementing Central Governments decisions and reform measure
24、s in order to create a better environment for the growth of the private sector. On October 19, Vice Premier Liu He said in an interview with the Peoples Daily that the government would support the development of private enterprises, deepen state owned enterprises (SOEs) reforms and strengthen the fi
25、nancial system to serve the real economy in order to increase the vitality, resilience and innovative prowess of micro entities and to further push forward the supply-side structural reform. The rebalancing of Chinas economy over the past several years has increased its resilience for stable growth.
26、 First, domestic demand has become the major drive of Chinas economic growth. The contribution by domestic demand to overall growth in the first three quarters of the year reached 109.8%, while the contribution by net exports remained negative. Second, industrial structure has continued to transform
27、 and optimize. Growth of the service industry, high-tech industry, equipment manufacturing industry, and emerging industries of strategic importance continued to exceed the overall industrial growth. Third, the profitability of companies has increased. Manufacturing investment is recovering, up 8.7%
28、 in the first three quarters of the year the highest rate since August 2015. Overall, the fundamentals of the Chinese economy remain solid, and further reform and opening- up should boost its long term growth potential. Special topic: CFIUS reform and Chinas investment in the US On 13 August 2018, U
29、S President Donald Trump signed the Foreign Investment Risk Review Modernization Act (FIRRMA), significantly expanding the Committee on Foreign Investment in the United States (CFIUS)s authority to scrutinize foreign investment, and revising the review process. FIRRMA significantly expanded the scop
30、e of CFIUSs jurisdiction by defining four new types of covered transactions specific non-controlling investments, changes in the rights of foreign investors that have already invested in US companies, real estate transactions and deliberate circumvention of transaction reviews. In addition, the refo
31、rm adjusted the review process, for example, introducing informal pre-notice consultations and draft notices, differentiating between selective declaration and mandatory declaration, extending review times, charging review fees and the establishment of an unidentified reporting transaction mechanism
32、. FIRRMA aims to reduce the cost of regular reviews as well as making CFIUS reviews more targeted. Although the US claims that the new FIRRMA is not targeting investment by specific countries, the number of investigations by CFUIUS on Chinese companies investment in the US has increased significantl
33、y. According to CFIUSs latest annual report, 29 Chinese companies M it is worthwhile for Chinese firms to pay close attention to. Chinese investors should be better prepared before investing in the US, limit investment in sensitive fields, be more proactive in communications with relevant parties, a
34、nd seek help from professional advisors. Executive Summary 4 2018KPMG,a China partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), aSwiss entity. All rightsreserved. 1 Economic outlook 5 2018KPMG,a China
35、partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), aSwiss entity. All rightsreserved. Chinas GDP growth in Q3 was 6.5% YOY, a drop of 0.2 percentage points compared to Q2. During the first three quarter
36、s, GDP increased by 6.7% YOY, down 0.1 percentage points compared to H1. The growth of the service industry continued to extend its lead over other industries, while growth of the secondary industry continued to slow. In the first three quarters, the service industry grew by 7.7% YOY, a 0.1 percenta
37、ge point increase over H1. Its contribution to GDP growth increased from 60.5% to 61.3%. The growth momentum of the secondary industry continued to weaken, with YOY growth dropping to 5.8% from 6.1% in H1. Its contribution to growth fell to 35.2% from 36.7%. It was the main reason for the slowdown i
38、n GDP growth. Production growth weakened and economic activities remained largely stable Figure 1: GDP growth rate, quarterly YOY, % 0 5 10 15 20 25 30 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 GDP: constant pricesGDP:current prices Source: Wind, KPMG analysis Figure 2: C
39、umulative YOY growth rate of the three industries, % 0 5 10 15 20 25 2200720122017 primary industrysecondary industry Source: Wind, KPMG analysis 6 2018KPMG,a China partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
40、 (“KPMG International”), aSwiss entity. All rightsreserved. In terms of output, the growth rate of the industrial output has slowed. In the first three quarters, the industrial value added above the designated size increased by 6.4% YOY, a 0.3 percentage point drop compared to H1. In terms of monthl
41、y data, the industrial value added dropped below 6% in September to an increase of 5.8% YOY; excluding the Chinese New Year factor 1, this was the lowest in recent years. The Purchasing Manager Index (PMI) of manufacturing fell for the fourth consecutive month and was recorded at 50.8 in September,
42、which was a slight drop of 0.5 percentage points compared to the previous month and significantly lower than the same period last year (52.4), indicating that there continues to be a marginal decline in the climate of manufacturing. Most factories usually close for approximately two or three weeks d
43、uring the Chinese New Year for workers to go home and reunite with their families. On the demand side, consumption continued to serve as the cornerstone for stable economic growth. In the first three quarters, its contribution to economic growth reached 78.0%. Capital formations contribution to econ
44、omic growth rebounded slightly to 31.8% (it was 31.4% in H1), but was still lower than the same period last year. External demands contribution to economic growth continued to be negative and was a cumulative -9.8% in Q3. Specifically, the growth rate of the total retail sales of consumer goods is s
45、till in a slow downward trend, with YOY growth of 9.3% during the first three quarters, a slight decrease of 0.1 percentage points compared to H1; the fixed asset investment remained relatively stable with slow growth, recording a growth rate of 5.4% in the first three quarters, a slight rebound of
46、0.1 percentage points compared to the previous eight months. Growth in exports remained relatively high, with a YOY increase of 12.2% in the first three quarters, but the trade surplus was significantly narrower than in the past few years. Figure 3: Growth of GDP in various sectors, cumulative value
47、, % Source: Wind, KPMG analysis -2 0 2 4 6 8 10 12 14 consumptioncapital formationnet exports 1Most factories usually close for approximately two or three weeks during the Chinese New Year for workers to go home and reunite withtheir families. 7 2018KPMG,a China partnership and a member firm of the
48、KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), aSwiss entity. All rightsreserved. 0 2 4 6 8 10 12 14 200018 Figure 4: Industrial value added for enterprises above the designated scale, monthly YOY % Source: Wind,
49、KPMG analysis The structural transformation continues apace. In the first three quarters, the growth rates of high-tech, equipment manufacturing and strategic emerging industries increased by 11.8%, 8.6% and 8.8% respectively, higher than the growth rate of all other industries above the designated size. 8 2018KPMG,a China partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), aSwiss entity. All rightsreserved. The growth of fixed asset investment remained low, but is expected to
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