Profiles of China Provinces, Cities and Industrial Parks

An Expert's View about Business Environment in China

Posted on: 28 May 2012

Latest Development
• The added-value industrial output grew by 9.3% in April 2012, down from 11.9% in March.
• Fixed assets investment grew by 20.2% in the first four months of 2012 compared to 20.9% in the first quarter.
• Retail sales increased by 14.1% in April 2012, compared to 15.2% in March.
• Inflation edged down to 3.4% in April 2012 from 3.6% in March. In the first four months of 2012, food prices grew by 7.8% and non-food prices up by 1.8%.
• In the first four months of 2012, exports and imports grew by 6.9% and 5.1% respectively, resulting in a trade surplus of US$19.3 billion.
• The reserve requirement ratio for banks will be reduced by 0.5 percentage points effective 18 May 2012.
• The Manufacturing Purchasing Managers’ Index improved to 53.3% in April 2012 from 49% in November 2011.

Current Economic Development
The Chinese economy grew by 9.2% and 10.4% in 2009 and 2010 respectively. In the four quarters of 2011, real GDP grew by 9.7%, 9.5%, 9.1% and 8.9% respectively, resulting in annual growth of 9.2% for 2011. In the first quarter of 2012, GDP grew by 8.1%.
As the Chinese economy revived in the second half of 2009, measures had been taken to minimize the chance of inflation and economic overheating. The People’s Bank of China (PBOC) raised the reserve requirement ratio six times in 2010 and five times in the first half of 2011. The PBOC has also raised the base lending rate for three times so far in 2011. As inflation is moderating in recent months, the PBOC reduced the reserve requirement ratio by 0.5 percentage points on 5 December 2011 and another 0.5 percentage points on 24 February 2012. As the economy showed signs of further slowing down, the PBOC announced a further reduction of the reserve requirement by 0.5 percentage points effective 18 May 2012.
Fixed assets investment is one of the major driving forces of the economy. After growing by 30.1% in 2009, fixed assets investment continued to grow by 24.5% in 2010. In 2011, fixed assets investment (excluding rural households) grew by 23.8% (or 16.1% in real terms), slightly slower than 25.6% growth recorded for the first half of 2011. In the first four months of 2012, investment growth slowed further to 20.2%.
Retail sales of consumer goods grew by 18.4% in 2010. In 2011, total retail sales increased by 17.1% with sales of jewellery went up by 42.1%, clothing and footwear went up by 24.2%, furniture went up by 32.8%, automobiles went up by 14.6% and household electrical appliances went up by 21.6%. In April 2012, retail sales grew by 14.1%, compared to 15.2% in March. In the first four months of 2012, growth of retail sales slowed to 14.7% with sales of household electrical appliances recorded a marginal growth of 2.4%. Growth of sales of jewellery also slowed to 15.7%.
The consumer price index (CPI) went up by 5.9% in 2008 but dropped slightly by 0.7% in 2009. In 2010, CPI increased by 3.3% on average with food prices increased by 7.2%. In 2011, CPI went up by 5.4% on average with food prices increased by 11.8% and non-food prices increased by 2.6%. In April 2012, CPI went up by 3.4%, slightly slower than 3.6% in March. In the first four months of 2012, CPI increased by 3.7% on average with food prices increased by 7.8% and non-food prices went up by 1.8%.
In 2010, added-value of industrial output (by large enterprises with annual sales exceeding RMB20 million) grew by 15.7%. In 2011, added-value of industrial output grew by 13.9% while the output of heavy industries grew by 14.3%, light industries increased by 13% and the output of foreign invested companies increased by 10.4%. In April 2012, added-value of industrial ouput slowed to 9.3% from 11.9% in March. In the first four months of 2012, added-value of industrial output increased by 11% with the output of foreign-invested companies grew by 6.6% only.
China’s Manufacturing Purchasing Managers’ Index (PMI) (compiled by China Federation of Logistics & Purchasing and China Logistics Information Centre) improved from 49% in November 2011 to 53.3% in April 2012. The sub-index of new export order also continued to improve in April 2012 to 52.2%.
Money supply - the growth of M2 (broad money supply) slowed to 12.8% in April 2012 from 13.4% in March. The growth of RMB loans also slowed to 15.4% in April 2012 from 15.7% 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 2010, there were 8.4 million private-owned enterprises (comparing to 1.76 million at end-2000). By the end of 2010, there were 948,202 private enterprises in Guangdong province.
Beginning 21 July 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 US dollar on 21 July 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 on each working day. Effective 16 April 2012, the floating band is further expanded to 1%. At the end of April 2012, the exchange rate of RMB was 6.3116 per US dollar compared to 6.7813 at the end of June 2010.
China's foreign exchange reserves reached US$3,305 billion by the end of March 2012, the largest in the world. Foreign debts amounted to US$695 billion at the end of 2011, of which 27.9% was medium- or long-term debts and 72.1% was short-term debts. The debt service ratio stood at 1.72% in 2011.

Foreign Trade and Investment
In 2011, China's total external trade reached US$3,642 billion, ranked second in the world after the US. Its exports and imports ranked first and second in the global economy respectively. In 2011, exports and imports grew by 20.3% and 24.9% respectively. In the first four months of 2012, exports and imports grew by 6.9% and 5.1% respectively, resulting in a trade surplus of US$19.3 billion.
Export-processing trade continued to be the major form of external trade. Export-processing trade accounted for 51% of China's total exports in 2007, but dropped to 44% in 2011. In 2011, exports and imports of processing trade grew by 12.8% and 12.5% respectively.
In 2011, exports of machinery, electrical and electronic products grew at 16.3% while exports of garments and footwear grew by 18.3% and 17.1% respectively. In the first four months of 2012, exports of machinery, electrical and electronic products grew by 8.5%, exports of garment and footwear increased by 1% and 4.2% respectively.
In 2011, China's top ten trading partners were U.S, Japan, Hong Kong, South Korea, Germany, Taiwan, Australia, Malaysia, Brazil and Russia. China's total trade with these ten economies together accounted for 55% of China's total external trade in 2011.
In 2011, exports of foreign-invested enterprises (FIEs) grew by 15.4%, accounting for 52.4% of China’s total exports, and imports increased by 17.1%, representing 49.6% of China’s total imports.
In 2011, the number of newly approved foreign-funded investment projects totalled 27,712, increased by 1.1%, while utilized foreign direct investment grew by 9.7% to US$116 billion. By the end of 2011, China approved a cumulative of 738,415 foreign investment projects, with actual utilized overseas FDI amounting to US$1,088.4 billion. The leading sources of investment included Hong Kong, Taiwan, Japan, Singapore, the US, South Korea , UK and Germany.
In 2010, FDI made by Chinese enterprises in overseas markets stood at US$68.8 billion (+21.7%), of which, FDI in non-financial sectors grew by 25.9% to US$60.2 billion. Hong Kong is the largest recipient of capital from Chinese enterprises, accounting for 62.8% of the total outward FDI up to 2010. Business services (mainly investment holdings), wholesale and retail, mining and manufacturing are the leading sectors (non-financial sectors) of China's outward FDI. Preliminary figure showed that in 2011, China’s outflow of FDI in non-financial sectors stood at US$60.1 billion.

Trade and Investment Policies
As a move to liberalize trade, China has continued to reduce administrative barriers to trade by increasingly switching to the use of tariffs and exchange rates adjustments. Since its WTO accession, China has basically fulfilled all its tariff reduction commitment. The average tariff rate remains at 9.8% beginning 2012, progressively down from 15.3% in 2001.
China has gradually liberalized its foreign trading system. According to the amended Foreign Trade Law which went into effect from July 2004, all types of enterprises, including private enterprises, can register for the trading right. Individual Chinese are also allowed to conduct foreign trade under the amended Foreign Trade Law.
On 31 October 2000, the Chinese government amended the Laws on Wholly Foreign-owned Enterprises and Sino-foreign Cooperative Joint Ventures to comply with the WTO accession requirements. The Chinese government also passed the amendments to the Law of Sino-foreign Equity Joint Ventures (EJVs). After the amendments, foreign enterprises enjoy greater autonomy in sourcing raw material either in the Chinese Mainland or from elsewhere and are no longer subject to the domestic sales ratio restriction.
A new version of the “Catalogue for the Guidance of Foreign Investment Industries” came into effect on 1 December 2007. Foreign-invested projects under the categories of “encouraged” will enjoy tariff-free imports of machinery and equipment for their own use and the import value-added tax will also be exempted.
In addition, the central government has also introduced tariff-free and VAT-exemption imports of capital equipment for projects within the hi-tech and priority sectors such as energy, agriculture, transport, infrastructure, production of raw materials, and tertiary industries, as well as in the pillar industries. These moves are targeted to attract high-quality overseas investment, introduce high technologies and know-how to rationalize the country's industrial structure.

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Posted: 28 May 2012

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