Foreign Investment Robust Despite Concerns Over Trade

in the last month of Q2, the Chinese economy demonstrated a high level of resilience. As international concerns foment over a trade spat with the United States, the renminbi (RMB) fell 3.1 percent against the dollar within the month of June, its biggest monthly drop since 1994. Markets also showed signs of caution, as the Shanghai composite index fell 6.4 percent to 2,847.42 on June 29. Signs of an underlying strength emerge; however, as foreign investors put heavy buys on Rmb-denominated domestic bonds, causing 10-year yields to decrease below the 3.5-percentage mark.

Manufacturing Activity Reflects Slowing Economy

On the back of strong performance in May, China’s manufacturing sector grew at a slower rate in June. While May saw a purchasing managers’ index (PMI) at 51.9, it dropped to 51.5 in June. This slump is attributed to several factors, including slower credit growth amid government crackdowns on certain types of lending, slowing internal demand indicated by slower growth in retail sales, and uncertainty around external demand with rising trade barriers in the United States. Furthermore, the employment sub-index indicates that Chinese factories have laid off the highest amount of staff since July 2017. These factors are all indicative of a slowdown in the economy, but this process is gradual.

BRI Gets a Boost in HK

The Third Belt and Road Summit was held in Hong Kong on the June 28, and was attended by over 5,000 participants from 55 countries. The theme of the event was Collaborate for Success. The summit served to create an opportunity for existing partners within the Belt and Road Initiative to collaborate further and to increase cooperation between nations. Various Mous were signed at the summit. The summit was used as a platform for partners to emerge in new and existing investment projects, by giving projects the marketing they require to succeed. Projects being invested in by China include the development of a smart city in Thailand’s Eastern Economic Corridor.

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The Chinafrica Econometer is produced by The Beijing Axis, an international advisory and procurement firm operating in four principal areas: Procurement, Sales Activation, Capital, and Strategy. for more information, please contact: Kobus van der Wath, kobus@axisgroup-international.com, www.thebeijingaxis.com

New Tariff Cuts

On July 1, China introduced new huge tariff cuts, covering consumer goods and automobiles, to help increase imports.

Tariffs on 1,449 taxable consumer items were reduced from an average rate of 15.7 percent to 6.9 percent, including home appliances, food and beverage, cosmetics and medicines, according to the Customs Tariff Commission of the State Council. It was the fifth round of tariff cuts for consumer goods since 2015.

Vehicles and auto parts also saw marked tariff reductions. The 20-to-25-percent tariffs on cars were cut to 15 percent, and duties on auto parts were lowered to 6 percent from the previous levels of 8 to 25 percent. Analysts believe the intensive measures will help China meet increasing domestic demand, achieve balanced trade and share development dividends with the rest of the world. China may remove more items from its recently announced negative list amid efforts to further open up its market to foreign investors, a stance that will help consolidate the global multilateral governance system, senior experts and officials said.

In June, the Central Government announced a shortened negative list for foreign investment nationwide and in freetrade zones. At the national level, the number of restrictive measures in the negative list was reduced from 63 in the previous version to 48, while that of restrictive measures in freetrade zones was reduced from 95 to 45. A negative list bars foreign investors from some sectors of the economy.

1,449 the number of taxable consumer items on which tariffs were reduced from an average rate of 15.7 percent to 6.9 percent

Expanding Imports

China publicized guidelines on expanding imports for balanced foreign trade on July 9, with policy incentives detailed in several areas. China should keep exports stable while at the same time further expand imports, according to the guidelines, which were approved and released by the State Council. China will optimize the structure of imports to support upgrading production and consumption, with tariff cuts in certain products and clean-up of unreasonable price mark-ups, the guidelines said. Policy incentives will be given to imports of daily consumer goods, medicine, and equipment for rehabilitation and elderly care.

A-shares Open Market

China will further open its A-shares market to foreign investors, the country’s top securities regulator said. Foreign individuals working in the Chinese mainland and those who work overseas for companies listed on the A-shares market and enjoy equity incentives will be allowed to open A-shares securities accounts, according to a statement on a draft rules revision released by the China Securities Regulatory Commission (CSRC). The securities regulatory body for the countries with qualified foreigners should have already established a regulatory cooperation mechanism with the CSRC, the statement said.

The CSRC will solicit public opinions on the draft rules and release the revised rules following procedures. Related tax and foreign exchange policies will also be released to support the rules.

New Energy Power Generation Growing

China reported faster growth in new energy power generation in June, according to official data released on July 17. “The growth of electricity generated by new energy accelerated markedly, while thermal and hydro power saw slower growth,” said Yan Pengcheng, Spokesperson for the National Development and Reform Commission (NDRC), at a press conference. In June, nuclear power generation increased 19.3 percent year on year, compared with 15.1 percent in May, according to NDRC data. Electricity generated by wind and solar rose 11.4 percent and 21.1 percent respectively, compared with 6.7 percent and 14.8 percent in May.

China is promoting new energy to cope with pollution and boost growth quality. Overall electricity output rose 6.7 percent year on year in June, while consumption went up 8 percent, the NDRC data showed.

In the first half of the year, power generation increased 8.3 percent year on year, slower than the 8.5-percent growth in the first five months.

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