Our comprehensive assessment of China's operating environment and the outlook for its leading sectors are formed by bringing together a wealth of data on global markets that affect China, as well as the latest industry developments that could impact China's industries. This unique integrated approach has given us an impeccable track-record for predicting important shifts in the markets, ensuring you’re aware of the latest market opportunities and risks in China before your competitors.

Country Risk

China Country Risk

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Core Views

  • As evidenced by strong rhetoric regarding its economic growth target in 2014, Beijing is likely to continue to implement targeted stimulus measures in order to avert a more acute economic slowdown. As a result of what we expect to be a balance between short-term stimulatory measures and longer-term economic reforms, we have upgraded our 2015 real GDP forecast to 6.7% from 6.0% previously. At the same time, we see the economy achieving a 7.3% rate of growth in 2014, versus our previous forecast of 7.1%.

  • The Chinese government's official investigation in Zhou Yongkang is a major split from past precedent, and will likely be the zenith of Xi Jinping's anti-corruption campaign. The campaign has also served as a purge to eliminate hostile political forces, and we believe that it will pave the way for Xi to enact more aggressive economic...

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China Operational Risk Coverage (9)

China Operational Risk

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BMI View: China's enormous domestic market and globally integrated supply chains will see the country continue to attract huge interest from foreign investors over the next five years, regardless of the rigidly regulated business environment. Nevertheless, an uptick in indiscriminate terror attacks across the country and a looming hard landing following credit-fuelled economic expansion will continue to cloud China's investment outlook.

The sheer size of China's economy and population mean that it will remain an attractive market for foreign investors, as is evidenced by the country boasting the largest foreign direct investment (FDI) inflows of any developing country worldwide. Nevertheless, we remain cautiously pessimistic in regard to the overall outlook for the Chinese economy over the next five...

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China Crime & Security

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BMI View: China poses considerable security risks for foreign business travellers, expatriates and tourists. The most salient problems for business operations in the country are street crime, cyber crime and indiscriminate terrorism (especially in Xinjiang Province). There is also a heightened risk of interstate conflict due to several ongoing territorial disputes with neighbouring countries. Consequently, China scores below the regional average in the BMI Crime and Security Risk Index, with 48.7 out of 100 placing the country 17th out of 29 states in Asia.

The most pertinent risks faced by foreigners in terms of crime is pick-pocketing, robbery and financial fraud. Reporting crimes to the police is made complicated by the lack of English-language skills on the part of the police and a reportedly inconsistent response. On...

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China Labour Market

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BMI View: Although the labour market in China is tightly regulated with regards to contracting foreign workers and employer contributions, it remains the largest work force on the planet and is set to remain so for the foreseeable future, despite the country's demographic decline. In addition, China has made rapid progression in terms of education provision since the beginning of the 21 st century, and now produces the most univer sity graduates in highly sought- after technical disciplines, which ultimately reduces the need for foreign investors to import labour in the first instance. As a result, BMI awards China a score of 53 .0 out of 100 for overall Labour Market Risk, placing the country 11...

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China Logistics

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BMI View: China boa s ts an extensive and well developed logistics network which has benefitted from significant investment in order to enable it to meet the demands of the country's rapid economic growth. There is good coverage of both utilities and transport infrastructure, with supply chains particularly gaining advantage from the quality of freight mode options and extensive maritime and air trade links. Although expansion of industry and trade volumes will be hindered by the economic slowdown, the demands of key economic sectors and supply chains will continue to place a strain on the logistics network. Consequently, the risk of disruption to business operations due to electricity and water shortages, road and port congestion, and workers strikes, will remain pertinent over the medium term. China nevertheless performs well...

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China Trade & Investment

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Foreign investors in China are able to take advantage of the country's huge domestic market, investment incentives in high value-added sectors and R&D expenditure, and relatively stable political environment. Nevertheless, corruption within business and politics remains pervasive in spite of targeted anti-corruption initiatives, and intellectual property protection remains weak. State-owned enterprises enjoy preferential treatment over foreign entities in areas such as credit allocation, taxation and legal protection. Taking these factors into consideration, BMI awards China a score of 48.2 out of 100 for overall Trade and Investment Risk, placing the country 13th out of 29 in Asia.

Although the Chinese government has openly declared that it welcomes foreign investment, the state maintains arbitrary restrictions on a number of key sectors in the economy. For instance, the government will not allow foreign...

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China Industry Coverage (24)

Agribusiness

China Agribusiness

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BMI View: China's weight in the global agricultural sector is growing, as the country has an increasing impact on international production balances and prices. China will maintain a strong appetite for key commodities, and we highlight in particular the growth potential for sugar, dairy and meat products. High demand growth, strong government support and potential for investment and consolidation in these industries will help them outperform in the coming years. However, the agribusiness sector is going through challenging times, with GDP slowing, consumer trust in food safety dwindling, food ingredient prices rising, labour costs soaring and bank loan requirements for small-sized enterprises tightening. This is best seen in the probe led by the government into foreign dairy companies' price-fixing schemes, which led to a record fine for top producers.

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Agribusiness Market Value

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Autos

China Autos

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Auto Sales

According to the China Association Of Automobile Manufacturers (CAAM), vehicle sales in June 2014 rose 5.2% year-on-year (y-o-y), to 1,845,800 units, bringing sales for H114 to 11,683,100 units, an increase of 8.4% y-o-y. It is important to note, however, that sales in June grew at the smallest y-o-y pace since March 2013 and were dragged down by the commercial vehicle (CV) segment, which contracted 19.7% y-o-y in the same month. While we are maintaining our passenger car sales forecast for 2014, we are downgrading our CV sales forecast due to the segment's poor performance year-to-date.

Economic Rebalancing Biting Into CV Demand

As fixed-asset investment slows and infrastructure spending cools (in part due to Beijing's reticence towards large-scale stimulus to prop up economic growth), it is only natural that demand for CVs will be hit...

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Commercial Banking

China Commercial Banking

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Commercial Banking Sector Indicators 
Date Total assets* Client loans Bond portfolio Other Liabilities and capital* Capital Client deposits

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Consumer Electronics

China Consumer Electronics

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BMI View: Consumer electronics spending in China is forecast to continue strong growth as vendors make inroads in key categories such as smartphones and PCs to achieve strong volume growth. An additional boost is the package of economic and social reforms announced by the government in late 2013, which should boost consumption , which had been effected to some extent by the cessation of government subsidies in 2013 . We expect the market value will grow by 8.5 % in 2014 and we expect growth momentum will be maintained over the medium term...

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Defence & Security

China Defence & Security

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Like many aspects of its defence posture, China keeps its annual defence budget secret, nevertheless, it is possible to make an accurate estimate regarding what the country spends annually on defence. To this end, we expect China's defence budget to reach USD132bn in 2014. By 2018, we expect China's defence budget to reach USD187bn.

We have given China an overall security risk rating of 74 for Q414. On average, the country has scored an overall security risk rating at the same level for the period January 2009 until Q414. We believe China faces a low risk of becoming involved in a major interstate conflict. Similarly, it faces a low risk of experiencing a major terrorist attack, although its susceptibility to criminal activity remains high.

China's occasionally tempestuous relationship with India was tested once again in mid-August 2014 when Chinese troops entered territory claimed by India. The move follows similar...

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Food & Drink

China Food & Drink

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In China, we forecast private consumption to grow by an average of 8.0% out to 2018, as Beijing tries to re-balance the economy towards consumption and away from investment. Although this will be a very difficult balancing act, given that it could result in a sharp slowdown in overall growth, the Xi Jinping and Li Keqiang administration is somewhat more hawkish than previous leaders and will continue to press ahead with economic rebalancing. Important policies include raising minimum wages, liberalising the financial sector as well as the implementation of safety nets such as unemployment benefits and insurance.

Headline Industry Data

  • 2014 food consumption local currency = +9.7%; compound annual growth rate (CAGR) forecast between 2013 and 2018 = +9.4%.

  • 2014 beer volume sales = +8.9%; CAGR forecast between 2013 and 2018 = +8.7%.

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Freight Transport

China Freight Transport

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BMI View: BMI maintains its cautious outlook for China's freight transport volumes for Q4 2014. We continue to believe that the hangover effects of China's economic stimulus are yet to be felt, and cooling credit growth is likely to reveal these effects over the coming quarters. Newfound reform momentum has the potential to help the economy grow out from under its credit excesses, however, several obstacles stand in the way of this, including the likelihood that reform efforts could exacerbate any economic downturn. We maintain our below-consensus forecast for China's real GDP growth of 7.1% in 2014 and 6.0% in 2015.

The outlook for China's traditional economic growth drivers, such as heavy industry and real estate construction, remains cloudy, and this will put downside pressure on freight volumes. The outlook facing the...

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Information Technology

China Information Technology

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BMI View: China continues to outperform in terms of IT spending growth and IT sector development. Despite rapid growth in the past decade the market remains attractive with strong growth prospects resulting from (inter alia) the size of population, rising incomes, relatively low market penetration and a supportive poli tical environment . IT spending growth in China is expected to outperform on a regional and global basis, with a CAGR of 9. 7 % forecast 2014-2018 as IT spending increases as a share of GDP...

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Infrastructure

China Infrastructure

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BMI View : The continued use of monetary and fiscal stimulus measures by the Chinese government at the expense of structural reforms suggests that near-term growth in China's infrastructure and construction sectors could be stronger than previously expected. That said, we still expect China's construction and infrastructure sectors to experience a structural slowdown over the long-term. The key reason for this outlook is because we believe that the basis for this increase in fixed asset investment is through the increase in liquidity in China's financial system, an unsustainable investment model due to the diminishing marginal return on expenditure.

Key Trends And Developments

  • Although the Chinese central government is increasingly aiming for economic growth to be driven by private consumption instead of fixed...

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Insurance

China Insurance

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BMI View: Although growth rates in the Chinese economy have slowed, the development of the country's insurance market has continued relatively unabated. After slowing during 2012 and 2013, strong growth rates have characterised the expansion of the life segment in 2014, while double-digit growth rates continue to enhance the number and value of insurable risks in non-life insurance segment.

Despite the absence of a new growth engine in premium business during the first half of 2014, major insurers in the life and non-life segments have responded to operational challenges by innovating their products and their distribution channels, thereby expanding their clientele. As a result, sector growth is expected to continue strongly, amidst the state announcement to encourage the diversification of the insurance market.

The past slowing of the economy appears not to have had a...

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Medical Devices

China Medical Devices

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Espicom Industry View: Despite a slowdown in some sectors , China remains one of the fastest growing medic al device markets in the world, which on the back of its vast market size , offers huge potential to medical device companies . However, the market environment is undergoing rapid change with a raft of new regulatory measures, which coupled with government incentives to develop local manufacturing and boost consumption of locally-produced products , threaten to alter the risk benefit profile of the Chinese...

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Metals

China Metals

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BMI View:   China's metals industry is set to face a protracted period of slowing growth as the country's rebala ncing process begins in earnest. Companies operating in se ctors that are tied heavily to the construction industry will take the brunt of weakness from the sharp slowdown in fixed asset investment.

With the Chinese economy on course for a continued slowdown over the coming years, we expect China's metals industry to come under pressure. The rebalancing of the Chinese economy away from fixed-asset investment and towards private consumption will significantly dampen appetite for...

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Mining

China Mining

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BMI View: More Chinese miners will come under duress from the economic slowdown in China over the coming years. Falling mineral prices and Beijing's gradual embrace of free market economics will threaten the survival of many small and private min ing operations.

We believe the economic slowdown in China will turn a decade-long mining boom into bust for many domestic miners. With cost containment being the key lever in the face of falling commodity prices, Chinese miners will be forced to recalibrate their investment approach over the coming quarters. While state-owned miners are generally more insulated from the weakness in mineral prices, Beijing's gradual embrace of free market economics should pave the way for some much needed consolidation and restructuring in the mining industry.

In a bid to tame overcapacity and reduce...

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Oil & Gas

China Oil & Gas

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BMI View: W hile China is increasingly dependent on energy imports - particularly gas - owing to rapid growth in its energy demand, there are considerable investment opportunities in its upstream segment. Concerted efforts by the government to improve the economics of gas production and conditions for private investment have allowed for some opening for greater private and foreign involvement. However, expansion opportunities in the downstream look to be increasingly limited as the government restrict s new short-term investments to battle both the problems of a potential overcapacity in the market, and the country's environmental problems.

The main trends and developments we highlight for China's oil and gas sector are:

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Petrochemicals

China Petrochemicals

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While Chinese petrochemicals output has grown in recent months, BMI's latest China Petrochemicals Report expects market conditions to worsen in key segments as the economy slows amid falling growth in consumer demand.

In the first seven months of 2014, ethylene output grew 6.2% year-on-year (y-o-y) to 9.96mn tonnes while plastics in primary forms rose 11.8% y-o-y to 39.74mn tonnes as the production of plastic products increased 8.5% to 41.78mn tonnes. This compares to an overall manufacturing growth rate of 9.9% over the January-July period. Meanwhile, Chinese Customs reports that in H114, polymer imports climbed around 11% from H113 to 8.63mn tonnes.

BMI believes much of the increase in petrochemicals and plastics output is attributed to rising capacity utilisation as new plants come on stream, although demand conditions also appear to be supportive of growth....

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Pharmaceuticals & Healthcare

China Pharmaceuticals & Healthcare

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BMI View:  A more 'rational' use of pharmaceuticals through pharmacoeconomics, and a crackdown on illegal rebates and corruption in China's pharmaceutical market could hinder the sector's growth potential. However, over the long term, the government is likely to improve its investment in healthcare in order to retain public support.

Headline Expenditure Projections

  • Pharmaceuticals: CNY532.4bn (US$86.6bn) in 2013 to CNY616.1bn (US$99.3bn) in 2014; +15.7% in local currency and +14.7% in US dollar terms. Forecast broadly unchanged from Q 3 13.

  • Healthcare: CNY3,230.8bn (US$525.4bn) in 2013 to CNY3,692.0bn (US$595.2bn) in 2014; +14.3% in local currency terms and +13....

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Power

China Power

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BMI View: China's power sector continues to be in a league of its own; and announcements by China Premier, Li Keqianq, that a series of large-scale power sector construction projects will be launched to 'stabilise growth and improve energy security' suggest that the sector will be benefit from China targeted stimulus approach. That said, with BMI 's Country Risk analysts anticipating that the Chinese economy is likely to slow down in the coming decade will be much slower than in the last, as the savings rate declines, the economic liberalisation process slows, and population growth falls. As such a slowdown in power demand appears to be on the cards. Meanwhile, the country is trying to ease its reliance on coal, focusing on cleaner forms of power generation. However, we still...

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Real Estate

China Real Estate

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BMI View:   Alt hough China's commercial real estate market remains an outperformer on a global level, we caution that the slowdown in economic growth, coupled with a residential property bubble threatens to derail the sector over the coming quarters. Growing concerns surrounding a residential property bubble and the government's efforts to prevent this , are seeing a flight of capital among investors to the US and other overseas markets.

The China real estate report examines the commercial office, retail, industrial and construction sectors in the country from the perspective that the market, which has experienced exponential growth over recent years, is starting to succumb to the impending conflagration of market weakness. 

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Renewables

China Renewables

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BMI View: We maintain a positive outlook on the non-hydropower renewable energy sector in China, and are leaving our forecasts unchanged. The country will continue to be the fastest growing and the largest market in terms of installed renewables capacity globally.

We have maintained our 2014 forecasts for non-hydropower renewable energy in China this quarter. We expect 12.2GW of solar capacity to come online in 2014, along with around 7GW of wind and biomass installations.

We have also maintained our medium- to long-term forecasts for solar capacity this quarter. At present, we forecast non-hydropower renewables generation capacity to grow by an average of 11.3% per annum between 2014 and 2023. We note that China will be the fastest growing and the largest market (in terms of total installed capacity) for renewable energy in the world for the foreseeable future. Here...

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Retail

China Retail

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BMI View: The Chinese retail sector is set to expand vigorously over the next few years as the country's growing and increasingly affluent population leads to a strong rise in household spending across all retail subsectors. We are particularly positive about the future growth prospects for communications and furnishing & home spending, with clothing & footwear also set to grow strongly; however, we expect the highest proportion of the household budget to be spent on food and drink throughout our forecast period.

The latest China retail report provides an extensive and comprehensive forecast of various retail indicators including household spending and headline total spending across each retail subsector, household income and employment forecasts, demographic forecasts and a detailed breakdown of household and per capita spending across a large number of retail areas including food...

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Shipping

China Shipping

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BMI View: We maintain our cautious view for China's shipping sector. While the outlook for China's traditional economic growth drivers such as heavy industry and real estate construction remains cloudy, the outlook facing the more consumer-focussed industries is relatively strong over the medium term. Overall, though, as the traditional sectors remain the dominant drivers of the economy, we remain cautious in our real GDP growth outlook. We expect the economy to expand by 7.1% in 2014, before slowing to average 6.1% over the next five years and caution that there are downside risks to this forecast.

After a decade-long cycle of high commodities prices partly boosted by stellar demand growth in China, the ongoing slowdown of the...

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Telecommunications

China Telecommunications

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BMI View : The Chinese telecommunications industry is the biggest in the world in terms of size and growth potential, with its 1.27bn mobile subscriptions translating to a penetration rate of only 90.8%. There are substantial growth opportunities in rural regions, where markets are still untapped, and the arrival of MVNO operators in Q214 should catalyse competition for these lower value subscribers. In 2014, the key growth drivers for the Chinese mobile sector are expected to come from mobile VAS and 4G services. The Chinese government pledged to support develop ment of China's e-commerce sector and the introduction of 4G services . 2014 should mark the transition into a high...

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Tourism

China Tourism

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BMI View : BMI 's China tourism report looks at a range of indicators for this enormous potential market, including the increasing volumes of both inbound and outbound travel, development of the hotel sector and transport infrastructure and gains in overall industry value. With no shortage of tourist attractions and a growing middle class with increasing spending power, we expect to see healthy growth across the board for tourism to and from China. 

Covering over 9.7mn square kilometres, China offers a seemingly endless array of attractions. The capital Beijing is home to sites of enormous cultural and historical importance, including the Forbidden City, Tiananmen Square, the Imperial Gardens and Mausoleums and hundreds of temples. Across the country, China boasts 47 UNESCO World Heritage Sites, behind only Italy. These include the Great Wall,...

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Water

China Water

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BMI View:   The ongoing widespread water pollution issues, in conjunction with the rising threat of long term water shortages due to rapid population growth, means that a vast amount of investment is needed in the water sector to expand and modernise the water wastewater and sanitation infrastructure. This will open up numerous opportunities to water management and water infrastructure groups.

The abrupt rise in population and urbanisation has put a strain on water resources. Domestic urbanisation, rapid industrialisation and the wide-spread construction of hydropower plants for electricity generation are using up China's water resources at a faster rate than could be replenished, aggravating droughts that have taken place throughout China. According to data from the Asian Development Bank, more than 400 Chinese cities are facing water shortages, with an average daily...

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