Market Profile on Chinese Mainland

An Expert's View about Business Environment in China

Last updated: 28 Apr 2011

Current Economic Development

The Chinese economy grew by 9.2% in 2009. In the first quarter of 2010, GDP growth accelerated to 11.9%, supported both by domestic demand and a recovery in exports. In subsequent quarters of 2010, GDP grew by 10.3%, 9.6% and 9.8% respectively, resulting in an average growth of 10.3% for 2010.  In the first quarter of 2011, real GDP grew by 9.7%.

As the Chinese economy revived in the second half of 2009, measures have 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.  So far in 2011, the PBOC has raised the reserve requirement ratio for four times.  The latest increase will be effective on 21 April 2011. The reserve requirement ratio for large commercial banks will be increased by 0.5 percentage points to 20.5%. The PBOC also raised the base lending rate twice on 9 February and 6 April of 2011.

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 the first three months of 2011, fixed assets investment (excluding rural households) grew by 25%.

Retail sales of consumer goods grew by 15.5% in 2009 and 18.4% in 2010. Continued growth in disposable income has contributed to the steady increase in retail sales. Government subsidies and tax breaks for home electronic appliances and automobiles have also helped to boost consumer demand. In 2010, retail sales of jewellery grew by 46%, furniture up 37.2% and automobiles increased by 34.8%.  In the first three months of 2011, total retail sales increased by 16.3% with the growth of sales of furniture and automobiles slowed to 24.5% and 14.2% respectively.

The consumer price index (CPI) went up by 4.8% in 2007 with food prices increased by 12.3%. In 2008, CPI went up by 5.9% with food prices increased by 14.3%.  In 2009, CPI dropped slightly by 0.7%. Food prices have started to accelerate since August 2009.  In 2010, CPI increased by 3.3% on average with food prices increased by 7.2%.  In March 2011, CPI went up by 5.4% with food prices grew by 11.7% and non-food prices increased by 2.7%. In the first three months of 2011, CPI went up by 5% on average with food prices increased by 11%.

In 2009 and 2010, added-value of industrial output (by state enterprises and large enterprises with annual sales exceeding RMB5 million) grew by 11% and 15.7% respectively. In 2010, added-value of industrial output grew by 15.7%, while the output of heavy industries grew by 16.5%, light industries increased by 13.6% and the output of foreign invested companies grew by 14.5%.  In the first three months of 2011, added-value of industrial output grew by 14.4% and the output of foreign invested companies increased by 11.9%.

After declining for three consecutive months to 52.2% in February 2011, China’s Manufacturing Purchasing Managers’ Index (PMI) (compiled by China Federation of Logistics & Purchasing and China Logistics Information Centre) improved in March 2011 to 53.4%.

Money supply - the growth of M2 (broad money supply) slowed to 15.7% in February 2011 from 19.7% in December 2010, but edged up to 16.6% in March 2011.

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 March 2010, there were 7.56 million private-owned enterprises (comparing to 1.76 million at end-2000).  By the end of 2009, there were 813,400 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. Effective 21 May 2007, the floating band of RMB against the US dollar is enlarged from 0.3% to 0.5% around the central parity published by the People’s Bank of China on each working day. At the end of March 2011, the exchange rate of RMB was 6.5441 per US dollar compared to 6.7813 at the end of June 2010.

China's foreign exchange reserves reached US$3,044.7 billion by the end of March 2011, the largest in the world. Foreign debts amounted to US$548.9 billion at the end of 2010, of which 31.6% was medium- or long-term debts and 68.4% was short-term debts.  The debt service ratio stood at 1.63% in 2010.

In 2010, the number of foreign tourists grew by 19.1% to 26.1 million.  Total foreign exchange earnings from tourism increased by 15.5% to US$45.8 billion.  According to the World Tourism Organization, China remained the 4th most popular tourist-destination (behind France, the US and Spain) in the world in 2009.

Foreign Trade and Investment

In 2010, China's total external trade reached US$2,973 billion, ranked second in the world after the US. Its exports and imports ranked first and second in the global economy respectively. In 2010, exports grew by 31.3% while imports soared by 38.7%.  In the first three months of 2011, exports and imports grew by 26.5% and 32.6% respectively, resulting in a US$1.02 billion trade deficit.

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.  The share dropped slightly to 47.3% in 2008 and bounced back to 48.8% in 2009. In 2009, exports and imports related to processing trade decreased by 13.1% and 14.8% respectively.  In 2010, exports and imports of processing trade grew by 26.2% and 29.5% respectively.
In 2010, exports of machinery, electrical and electronic products declined by 30.9% while garments and footwear dropped by 20.9% and 27.1% respectively. In the first three months of 2011, exports of machinery, electrical and electronic products grew at 22.8%. Exports of garments and footwear grew by 18.4% and 21.6% respectively.

In 2010, China's top ten trading partners were U.S, Japan, Hong Kong, South Korea, Taiwan, Germany, Australia, Malaysia, Brazil and India. China's total trade with these ten economies together accounted for 56.8% of China's total external trade in 2010.

In 2010, exports of foreign-invested enterprises (FIEs) grew by 28.3%, accounting for 54.6% of China’s total exports, and imports increased by 35.3%, representing 52.9% of China’s total imports.

In 2010, the number of newly approved foreign-funded investment projects totalled 27,406, increased by 16.9%, while utilized foreign direct investment grew by 17.4% to US$105.7 billion. By the end of 2010, China approved a cumulative of 710,703 foreign investment projects, with actual utilized overseas FDI amounting to US$1,078.7 billion. The leading sources of investment included Hong Kong, Taiwan, Japan, Singapore, the US, South Korea , UK and Germany.

In 2009, FDI made by Chinese enterprises in overseas markets stood at US$56.5 billion, of which, FDI in non-financial sectors grew by 14.2% to US$47.8 billion. Hong Kong is the largest recipient of capital from Chinese enterprises, accounting for 66.9% of the total outward FDI up to 2009. Business services (mainly investment holdings), wholesale and retail, mining and manufacturing are the leading sectors (non-financial sectors) of China's outward FDI. Preliminary figures showed that China’s outward FDI (non-financial sectors) grew by 36.3% in 2010 to US$59 billion.

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Posted: 26 April 2011, last updated 28 April 2011

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