Warning: You are using an outdated Browser, Please switch to a more modern browser such as Chrome, Firefox or Microsoft Edge.

Open with Edge
LOGIN
Search
LOGIN

CHINA

The leeway for policy support is declining

B2

MEDIUM RISK for entreprise

  • Economic risk

  • Business environment risk

  • Political risk

  • Commercial risk

  • Financing risk

  • Economic risk

  • Business environment risk

  • Political risk

  • Commercial risk

  • Financing risk

The country risk assessments are your North Star metrics to make the right decision for your business and understand the risks in international trade. We have always the best solution for your needs

Swipe to view more

GDP USD 14342bn (World ranking 2, World Bank 2019)
Population 1397mn (World ranking 1, World Bank 2019)
Form of state One-party state
Head of state Xi Jinping (General Secretary of the Communist Party)
Next elections None
  • Large domestic market
  • Improvement in macro-prudential management
  • External position and fiscal position (to lesser extent) are relatively solid
  • New growth opportunities as the country moves up the global value chain, and the services sector develops
  • Increasing market orientation and opening of the domestic market
  • High corporate debt, rising household debt
  • Industrial overcapacity
  • Strong involvement of the public sector in the economy
  • Continued geopolitical tensions with key countries in the region and the U.S.
  • Competitiveness erosion for traditional manufacturing sectors
  • Aging population
useful description of image if informative and not decoration only.

An uneven recovery

China’s economic growth is set to decline markedly in 2020 as a result of the global Covid-19 pandemic. We expect GDP growth at +1.5% in 2020, after +6.1% in 2019. After the epidemic was controlled domestically in China, the resumption of economic activity has been gradual and uneven. The recovery in the manufacturing sector may be capped by subdued private consumption (as a result of lower consumer confidence and disposable income) and global trade being under pressure (as China’s trading partners exited Covid-19-related lockdowns later). On the positive side, policy-driven sectors such as infrastructure and construction are rebounding more quickly. Although it avoided setting a growth target for 2020, the Chinese leadership has emphasized employment as a priority. Policy support is turning more aggressive to safeguard jobs. We estimate that fiscal stimulus in 2020 will amount to 6.7% of GDP (compared with 5.7% over 2018-19). The monetary policy has also become more accommodative, with a special focus on micro and small enterprises. We expect the economic recovery to become more visible in the second half of 2020, as long as downside risks do not materialize. These include the risks of new Covid-19 outbreaks and rising protectionism (e.g. tensions between the U.S. and China). 
useful description of image if informative and not decoration only.

Macro-policies: reticient stimulus

While stepping up fiscal support in 2020, the Chinese leadership is wary of undoing the efforts of fiscal discipline. This is because public finances have deteriorated markedly over the past ten years. Risks remain manageable at this stage. In particular, the composition of Chinese public debt is “safer” when compared to other economies, with a limited exposure to external investors. Public external debt is c.2% of GDP.

On the monetary side, risks are relatively contained. Inflation should average less than 3% over 2020. Downward pressures on the currency remain in the context of the global pandemic and the tense relationship with the U.S., but with no sign of acute capital outflows pressures. As a result of a leverage control campaign launched in 2017, financial risks have reduced slightly, with a decrease in shadow banking and a stabilization of corporate debt. Yet, we remain cautious regarding the outlook. The monetary policy stance of China’s central bank has shifted to easing in order to support economic growth, leading to a re-acceleration of credit and possibly shadow banking. The situation of smaller banks in particular, which are exposed to more vulnerable firms, needs to be monitored.

useful description of image if informative and not decoration only.

External position: weakening but still strong

China’s external position is relatively strong. External debt is generally low (c.16% of GDP in 2019). The current account balance is at a satisfactory level (in surplus at 1.0% of GDP in 2019). FX reserves are still at a high level, covering more than 15 months of imports. Yet, the trend is clearly downwards: while the current account was 10% of GDP in 2007, we expect it to be roughly neutral in 2020, and FX reserves reduced by -22% between June 2014 and April 2020.

Business environment:  changing the rules of the game

The business environment is improving. China jumped to the 31st rank in the World bank Doing Business survey in 2019 (from 46th in the previous edition and 78th the one before). This progress reflects an improvement in a wide array of subcomponents ranging from procedures for starting a business to measures to improve electricity access and get construction permits. Looking ahead, signs of further improvement are building up. Since 2018, authorities have initiated a range of policies to (i) create a more pro-private businesses environment (tax cuts, targeted lending to private companies etc.), (ii) facilitate trade with tariff cuts (in the automotive sector, consumer goods, for e.g.) and (iii) accelerate the country’s opening to foreign investment (e.g. reducing barriers in the financial sector).

Trade structure by destination/origin

(% of total)

Exports Rank Imports
United States 18.0%
1
10.4% Korea, Republic of
Hong Kong 14.6%
2
9.0% Japan
Japan 6.0%
3
8.6% Taiwan
Korea, Republic of 4.4%
4
8.6% United States
Germany 3.0%
5
5.0% Germany

Trade structure by product

(% of total)

Exports Rank Imports
Electrical machinery, apparatus and appliances, n.e.s. 13%
1
20% Electrical machinery, apparatus and appliances, n.e.s.
Telecommunication and sound recording apparatus 12%
2
9% Petroleum, petroleum products and related materials
Office machines and automatic data processing machines 9%
3
9% Metalliferous ores and metal scrap
Articles of apparel & clothing accessories 8%
4
5% Professional and scientific instruments, n.e.s.
Miscellaneous manufactured articles, n.e.s. 7%
5
5% Road vehicles
As a result of the rebalancing policy in China, direct financing or bank loans are shrinking sharply and extending to more and more sectors. Consequently, DSO remains high and late payments are not efficiently regulated.

  • Low

  • Medium

  • Sensitive

  • High

  • Payments

  • Court proceedings

  • Insolvency proceedings

  • Payments

  • Court proceedings

  • Insolvency proceedings


The court system is complex and suffers from a lack of transparency, delays and high costs. As enforcement results are poor, amicable or non-litigation collection is the preferred option.

The insolvency framework is complex, with liquidation as the default procedure.​

Download the entire collection complexity PDF:

Collection complexity China 8 MB

LATEST NEWS ABOUT CHINA

Contacts

 
Euler Hermes Economic Research
research@eulerhermes.com
Françoise Huang
Senior Economist for Asia Pacific
francoise.huang@eulerhermes.com

Read our latest reports 

Popular Risk Reports: Americas

Popular Risk Reports: Europe

Popular Risk Reports: Asia Pacific

Popular Risk Reports: Middle East

Want to discover more?

View our local website

Read Our Latest Blogs

questions-expand-into-new-markets
questions-expand-into-new-markets

Expanding Into New Markets: The Key Considerations

How to ensure you’re fully ready before expanding to a new market? Check out the key questions you should answer.

Read the article
Assessing Customer Creditworthiness - Traffic Light
Assessing Customer Creditworthiness - Traffic Light

How to Assess the Creditworthiness of a Customer

Checking the creditworthiness of new customers is important to ensure a steady cash flow. Learn the best practices for assessing new clients.

Read the article

Avoid High Customer Concentration Risk

High customer concentration occurs when a single customer accounts for 20% or more of your business’ revenue. Learn more about the risks involved from Euler Hermes.

More information

What To Do If a Client Doesn't Pay

Suffering from an unpaid invoice can feel overwhelming. Contacting the client in a courteous way should be your first step. Learn more about how to get a client to pay an invoice.

More information
10 Signs Your B2B Customer Won't Pay
10 Signs Your B2B Customer Won't Pay

Infographics

10 Signs Your B2B Customer Won't Pay

Unpaid invoices are serious threats to businesses' financial growth. Read these 10 tips from Euler Hermes on how to detect signs of customer non-payment here.

More information
Chess Game - Data-Driven Customer Decisions
Chess Game - Data-Driven Customer Decisions

How to Use Big Data to Gain a Competitive Advantage and Boost Sales

When growing a business, it is important to be data-driven in your approach. Learn how to leverage big data to grow sales and beat out the competition.

Read the article
City Skyline - A Guide to Credit Insurance
City Skyline - A Guide to Credit Insurance

What is Trade Credit Insurance Coverage?

Learn about trade credit insurance including what it is, what’s covered, benefits and how it works. Visit Euler Hermes today to find out how we can help protect your business.

Read the guide
6 Steps to Reduce DSO
6 Steps to Reduce DSO

6 Steps to Reduce DSO

Days Sales Outstanding is a key measure to track for a business’s healthy cash flow. Learn how to improve your company’s cash flow by reducing DSO with Euler Hermes.

More information
Chess Game - Data-Driven Customer Decisions
Chess Game - Data-Driven Customer Decisions

How to Use Big Data to Gain a Competitive Advantage and Boost Sales

When growing a business, it is important to be data-driven in your approach. Learn how to leverage big data to grow sales and beat out the competition.

Read the article
Bankruptcies and B2B Payment Issues
Bankruptcies and B2B Payment Issues

EH Trade Talk: Bankruptcies and B2B Payment Trends

In this episode of our EH Trade Talk, host Andrew Gertz talks with guest Steve Georgetti, VP and Regional Director of Information and Grading, about payment default trends and takeaways from bankruptcies in the last 12 months.

Read the article

Customer Credit Management Techniques

Utilizing effective credit management techniques is essential in ensuring late payments don’t jeopardize your business. Get helpful tips here.

Get credit management tips
Disadvantages of Bad Debt Reserves
Disadvantages of Bad Debt Reserves

Disadvantages of Bad Debt Reserves

The soft costs involved in relying on bad debt reserves for your accounts receivable can add up quickly. Visit Euler Hermes to learn about the alternatives.

Learn more

How COVID-19 is Transforming Business

In this EH Trade Talk interview, Aaron Lindstrom, Regional Head of Transformation and Digital Partnerships, will discuss the impact of COVID-19, how businesses have transformed, and finding opportunities even during these uncertain times.

More information

What to Do If a Company Goes Bankrupt and Owes You Money

If your business extends credit to a company that files for bankruptcy, you may have to face unpaid debts. Learn how to protect your cash flow with Euler Hermes.

More information

Doing Business With a Company in Chapter 11

What can you do if a key customer files for Chapter 11 bankruptcy? Learn how to reduce the risk of doing business with reorganizing companies with Euler Hermes.

More information

Get economic & trade content in your inbox

We're always producing new content to help businesses understand economic trends and navigate trade uncertainty.
Sign up for our newsletters to make sure you don't miss anything.
Subscribe Today