Policy fine-tuning


MEDIUM RISK for entreprise

  • Economic risk

  • Business environment risk

  • Political risk

  • Commercial risk

  • Financing risk

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GDP USD12237.7bn (World ranking 2, World Bank 2017)
Population 1386.4mn (World ranking 1, World Bank 2017)
Form of state Communist State
Head of government Li KEQIANG
Next elections na
  • External position and fiscal position are relatively solid
  • Large domestic market
  • New growth opportunities as the country moves up the value chain and services develop
  • Improvement in macro-prudential management
  • Increasing market orientation
  • High corporate debt
  • Industrial overcapacity (steel, coal, for e.g.)
  • Strong involvement of the public sector in the economy
  • Aging population
  • Competitiveness erosion for traditional manufacturing sector
  • Continued geopolitical tensions with key countries in the region

Hard or soft landing?

Economic growth is set to slow but remain resilient at +6.4% in 2019 (from +6.6% in 2018). The beginning of the year will likely be disappointing due to slower growth in global trade and private consumption. Yet, we expect activity growth to pick up some speed in the second half of the year. This acceleration will stem from two things: First, a global trade recovery as China-US tensions ease. Second, an acceleration of domestic demand, led by expansionary policies. The government announced a fiscal package of c.5% GDP in March 2019. Financial authorities also revealed a wide range of policies to ease financing conditions for the private sectors. This includes measures to increase liquidity in the financial system (Reserve requirement ratio cuts, for e.g.), boost banks’ capital, support the development of non-shadow banking sources of financing (equity, corporates bonds, for e.g.) and prompt banks to lend to the private sector. 

Macro-policies: walking a fine line

Public finances have deteriorated markedly over the past ten years. Yet risks are manageable.  First, fiscal ratios remain at adequate levels when compared to other major economies. General government debt is estimated at 50% GDP while it is clearly above 60% in the G-7. Secondly, the composition is “safer” for China with a limited exposure to external investors. Public external debt is c.2% GDP.

On the monetary side, risks are relatively contained. Inflation is under control in a 1% to 3% range. Downward pressures on the currency have reduced in Q1 as China-US trade tensions receded and the US central bank has signaled no further hike in 2019. Financial risks have reduced slightly with a decrease in shadow banking and a stabilization of corporate debt. Yet, we remain relatively cautious regarding the outlook. China’s central bank is gradually switching its monetary policy to a prudent easing in order to support economic growth and this could lead a re-acceleration of both shadow banking and leverage. 

External position: weakening but still strong

China’s external position is relatively strong. External debt is generally low (c.15% GDP in 2018). The current account balance is at a satisfactory level (slightly in surplus at 0.4% GDP). FX reserves are still at a high level, covering more than 10 months of imports. Yet, the trend is clearly downward: While the current account was 10% GDP in 2007, we expect it to be neutral in 2019; FX reserves reduced by -23% between June 2014 and February 2019.

Business environment:  Changing the rules of the game

The business environment is improving. China jumped to the 46th rank in the World bank Doing Business survey in 2018 (from 78Th in the previous edition). This progress reflects 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 last year, the authorities have intiated a range of policies to (i) create a pro-private businesses envionment (tax cuts, targeted lending to private companies), (ii) facilitate  trade with tariff cuts (on the automotive sector, consumer goods, for e.g.) and (iii) accelerate the country’s financial opening with reduced barriers to foreign investors. 

Trade structure by destination/origin

(% of total)

Exports Rank Imports
United States 18.0%
10.4% Korea, Republic of
Hong Kong 14.6%
9.0% Japan
Japan 6.0%
8.6% Taiwan (PRC)
Korea, Republic of 4.4%
8.6% United States
Germany 3.0%
5.0% Germany

Trade structure by product

(% of total)

Exports Rank Imports
Electrical machinery, apparatus and appliances, n.e.s. 13%
20% Electrical machinery, apparatus and appliances, n.e.s.
Telecommunication and sound recording apparatus 12%
9% Petroleum, petroleum products and related materials
Office machines and automatic data processing machines 9%
9% Metalliferous ores and metal scrap
Articles of apparel & clothing accessories 8%
5% Professional and scientific instruments, n.e.s.
Miscellaneous manufactured articles, n.e.s. 7%
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

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.​

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Collection complexity China

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