Market Focus: China
The UK is one of Europe’s largest investors in China, and among the largest destinations in Europe for China’s outward investment. As of 2014, China is the world’s second-largest economy. Between 2007 and 2011, China’s economic growth rate was equivalent to all of the G7 countries’ growth combined. China’s success has been primarily due to manufacturing as a low-cost producer. This is attributed to a combination of cheap labour, good infrastructure, relatively high productivity, favourable government policy, and a possibly undervalued exchange rate.
China’s annual growth rate fell for seven straight quarters through to the third quarter of 2012; however a pick up is forecasted in October-December. With the euro area still in recession and US demand sluggish, the economy faces considerable headwinds. Furthermore, the new leader Xi Jinping and other policy makers are likely to unveil aggressive stimulus this year when they hope to revive an economy seen growing at its weakest pace since 1999.
Growth in Chinese exports is expected to be most rapid to other economies in Asia (excluding Japan) over the medium term. Chinese exporters will begin to target new markets for their products in other emerging economies. Export prospects amongst the developed economies appear far more restrained, with the share of exports to Europe expected to decline. The US economy continues to represent the most important market for Chinese exporters in terms of its absolute size. In terms of imports, rest of Asia (excluding Japan) remains the largest with a quarter of total Chinese imports.
The Chinese Government’s 5-Year Plan, vows to continue reforming the economy. The government has recently focused on financial-sector reform. The modest economic growth will help economic restructuring as Chinese firms are increasingly under pressure to move up the value chain, creating demand for imported manufactured goods in the long term. China will remain an important and viable market for a wide range of products and services. As a result China offers huge opportunities for British companies, particularly in sectors such as food and drink, renewable energy and financial services.