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Market Profile on Chinese Mainland

  Latest Development
  Current Economic Development
  Foreign Trade and Investment
  Economic Relations with Hong Kong
  Hong Kong's Trade with the Chinese Mainland
 

Latest Development
  • Real GDP growth slowed to 7.6% in the second quarter of 2012, resulting in an average growth of 7.8% in the first half of 2012.

  • The added-value industrial output grew by 10.1% in Jan-Aug 2012, down from 11.6% in the first quarter.

  • Fixed assets investment grew by 20.2% in the first eight months of 2012 compared to 20.9% in the first quarter.

  • Retail sales increased by 13.2% in July 2012, compared to 15.2% in March.

  • Inflation edged up to 2% in August 2012 from 1.8% in July.  In the first eight months of 2012, food prices grew by 5.9% and non-food prices up by 1.6%.

  • In August 2012, exports grew by 2.7%, up from 1% in July.

  • The Manufacturing Purchasing Managers’ Index declined to 49.2% in August 2012 from 50.1% in July.
Major Economic Indicators 2011 Jan-Aug 2012
Value Growth (%) Value Growth (%)
Area (sq km, mn) 9.6   9.6  
Population (mn) 1,347.4   1,347.4  
Gross Domestic Product (RMB bn) 47,288.2 9.3 1 22,709.8 4 7.8 1
Urban Per Capita Disposable Income (RMB) 21,810 8.4 1 12,509 4 9.7 1
Rural Per Capita Disposable Income (RMB) 6,977 11.4 1 4,303 4 12.4 1
Fixed Assets Investment 2 (RMB bn) 30,193.3 23.8 21,795.8 20.2
Added-Value of Industrial Output 3 (RMB bn)   13.9 1   10.1 1
Consumer Goods Retail Sales (RMB bn) 18,391.9 17.1 13,119.5 14.1
Consumer Price Index   5.4   2.9
Exports (US$ bn) 1,898.6 20.3 1,309.1 7.1
Imports (US$ bn) 1,743.5 24.9 1,188.5 5.1
Trade Surplus (US$ bn) +155.1   120.6  
Utilised Foreign Direct Investment (US$ bn) 116.0 9.7 66.7 4 -3.6
Foreign Currency Reserves (US$ bn) 3,181.1 11.7 3,240 5 1.3

Note: 1 Real growth  2 Urban investments in fixed assets
        
3
All state-owned and other types of enterprises with annual sales over RMB 5 million    
         
4 Jan-Jul  2012    5
As of end-June 2012
Sources: The National Bureau of Statistics, Ministry of Commerce, and General Administration of Customs.

 

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Current Economic Development

The Chinese economy grew by 9.2% and 10.4% in 2009 and 2010 respectively. In the four quarters of 2011, real GDP grew by 9.7%, 9.5%, 9.1% and 8.9% respectively, resulting in annual growth of 9.2% for 2011. In the first two quarters of 2012, GDP grew by 8.1% and 7.6% respectively, resulting in an average growth of 7.8% in the first half of 2012.

As inflation is moderating, the PBOC reduced the reserve requirement ratio by 0.5 percentage points on 5 December 2011 and another 0.5 percentage points on 24 February 2012. As the economy showed signs of further slowing down, the PBOC announced a further reduction of the reserve requirement by 0.5 percentage points effective 18 May 2012. The base lending rates were cut by 0.25 percentage points on 8 June 2012 and by another 0.31 percentage points on 6 July 2012.

Chart: Quarterly GDP Growth/Fixed Assets Investment Growth

Fixed assets investment is one of the major driving forces of the economy. After growing by 30.1% in 2009, fixed assets investment continued to grow by 24.5% in 2010. In 2011, fixed assets investment (excluding rural households) grew by 23.8% (or 16.1% in real terms), slightly slower than 25.6% growth recorded for the first half of 2011.  In the first eight months of 2012, investment growth slowed further to 20.2%, slightly slower than 20.9% recorded in the first quarter of 2012.

Chart: Added-value of Industrial Output Growth/Changes in CPI

Retail sales of consumer goods grew by 18.4% in 2010. In 2011, total retail sales increased by 17.1% with sales of jewellery went up by 42.1%, clothing and footwear went up by 24.2%, furniture went up by 32.8%, automobiles went up by 14.6% and household electrical appliances went up by 21.6%.  In August 2012, retail sales grew by 13.2% (Real growth at 12.1%). In the first eight months of 2012, growth of retail sales slowed to 14.1% from 14.8% in the first quarter of 2012 with sales of household electrical appliances recorded a slow growth of 5.1%. Growth of sales of jewellery also slowed to 16.1% and sales of automobiles grew by 7.7%.

The consumer price index (CPI) went up by 5.9% in 2008 but dropped slightly by 0.7% in 2009.  In 2010, CPI increased by 3.3% on average with food prices increased by 7.2%. In 2011, CPI went up by 5.4% on average with food prices increased by 11.8% and non-food prices increased by 2.6%. In August 2012, CPI went up by 2%, compared to 1.8% in July. In the first eight months of 2012, CPI increased by 2.9% on average with food prices increased by 5.9% and non-food prices went up by 1.6%.

In 2010, added-value of industrial output (by large enterprises with annual sales exceeding RMB20 million) grew by 15.7%. In 2011, added-value of industrial output grew by 13.9% while the output of heavy industries grew by 14.3%, light industries increased by 13% and the output of foreign invested companies increased by 10.4%.  In August 2012, added-value of industrial output grew by 8.9%. In the first eight months of 2012, added-value of industrial output increased by 10.1% with the output of foreign-invested companies grew by 6% only.

China’s Manufacturing Purchasing Managers’ Index (PMI) (compiled by China Federation of Logistics & Purchasing and China Logistics Information Centre) improved from 49% in November 2011 to 53.3% in April 2012 but declined to 50.1% in July 2012 and further down to 49.2 in August.

Money supply - the growth of M2 (broad money supply) picked up to 13.9% in July 2012 from 12.8% in April. The growth of RMB loans also accelerated to 16% in July 2012 from 15.4% in April.

Chart: Growth of RMB loans/Manufacturing PMI

China's non-state sector expands rapidly and experiences healthy development in recent years. The status and economic contribution of private enterprises received official recognition in the 9th National People’s Congress held in March 1999. By the end of 2010, there were 8.4 million private-owned enterprises (comparing to 1.76 million at end-2000).  By the end of 2010, there were 948,202 private enterprises in Guangdong province.

Beginning 21 July 2005, China reformed the Renminbi (RMB) exchange rate regime by moving into a managed floating exchange rate system with reference to a basket of currencies, and the exchange rate of RMB was re-valued to 8.11 per US dollar on 21 July 2005. On 21 May 2007, the floating band of RMB against the US dollar was enlarged from 0.3% to 0.5% around the central parity published by the People’s Bank of China on each working day.  Effective 16 April 2012, the floating band is further expanded to 1%. At the end of August 2012, the exchange rate of RMB was 6.3469 per US dollar compared to 6.7813 at the end of June 2010.

China's foreign exchange reserves reached US$3,240 billion by the end of June 2012, the largest in the world. Foreign debts amounted to US$695 billion at the end of 2011, of which 27.9% was medium- or long-term debts and 72.1% was short-term debts.  The debt service ratio stood at 1.72% in 2011.

 

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Foreign Trade and Investment

In 2011, China's total external trade reached US$3,642 billion, ranked second in the world after the US. Its exports and imports ranked first and second in the global economy respectively. In 2011, exports and imports grew by 20.3% and 24.9% respectively. In August 2012, exports grew by 2.7%, up from 1% growth in July. In the first eight months of 2012, exports and imports grew by 7.1% and 5.1% respectively, resulting in a trade surplus of US$120.6 billion.

Chart: Growth of Trade/Trade Balance

Export-processing trade continued to be the major form of external trade. Export-processing trade accounted for 51% of China's total exports in 2007, but dropped to 44% in 2011. In 2011, exports and imports of processing trade grew by 12.8% and 12.5% respectively.

In 2011, exports of machinery, electrical and electronic products grew at 16.3% while exports of garments and footwear grew by 18.3% and 17.1% respectively.  In the first eight months of 2012, exports of machinery, electrical and electronic products grew by 8.3%, exports of garment dropped by 0.7% while exports of footwear increased by 8.8% respectively.

In 2011, China's top ten trading partners were U.S, Japan, Hong Kong, South Korea, Germany, Taiwan, Australia, Malaysia, Brazil and Russia. China's total trade with these ten economies together accounted for 55% of China's total external trade in 2011.

In 2011, exports of foreign-invested enterprises (FIEs) grew by 15.4%, accounting for 52.4% of China’s total exports, and imports increased by 17.1%, representing 49.6% of China’s total imports.

In 2011, the number of newly approved foreign-funded investment projects totalled 27,712, increased by 1.1%, while utilized foreign direct investment grew by 9.7% to US$116 billion. By the end of 2011, China approved a cumulative of 738,415 foreign investment projects, with actual utilized overseas FDI amounting to US$1,088.4 billion. The leading sources of investment included Hong Kong, Taiwan, Japan, Singapore, the US, South Korea , UK and Germany.

In 2011, FDI made by Chinese enterprises in overseas markets stood at US$74.7 billion (+8.5%), of which, FDI in non-financial sectors grew by 14% to US$68.6 billion. Hong Kong is the largest recipient of capital from Chinese enterprises, accounting for 61.6% of China’s cumulative outward FDI up to 2011. Business services (mainly investment holdings), wholesale and retail, mining and manufacturing are the leading sectors (non-financial sectors) of China's outward FDI.

As a move to liberalize trade, China has continued to reduce administrative barriers to trade by increasingly switching to the use of tariffs and exchange rates adjustments. Since its WTO accession, China has basically fulfilled all its tariff reduction commitment. The average tariff rate remains at 9.8% beginning 2012, progressively down from 15.3% in 2001.

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Economic Relations with Hong Kong

The Chinese mainland and Hong Kong signed the Closer Economic Partnership Arrangement (CEPA) on 29 June 2003 and supplemented with further liberalisation measures in subsequent years. At present, all products of Hong Kong origin can be imported into the mainland tariff free under CEPA. For products which have no agreed CEPA rules of origin at present, Hong Kong will initiate discussions with the mainland twice a year upon requests by local manufacturers.

On top of the provisions granted in earlier phases of CEPA, the Supplement IX to CEPA were signed on 29 June 2012, providing 37 market liberalisation measures in 22 sectors, bringing the total number of liberalised service sectors under CEPA to 48.

Hong Kong is so far the most important entrepot of the Chinese Mainland. If re-exports to and from the Chinese Mainland are included, about 15.3% of the Mainland‘s foreign trade were handled via Hong Kong in 2011. The figure will be higher if transhipment of goods to and from the Mainland via Hong Kong is also included. According to the HKSAR government statistics, in 2011, 61.6% of re-exports were of China origin and 52.5% were destined for the Chinese mainland.

Hong Kong's Direct Investment in the Chinese Mainland

Projects, contracted and
utilized direct investment

2011 1979-2011

No./
Value

Share of the
national total (%)
No./
Value
Share of the
national total (%)
Number of approved projects 13,889 50.1 323,778 43.8
Utilized direct investment (US$ bn) 70.5 60.8 525.6 45.1

Sources: China Monthly Statistics

Hong Kong is the largest source of overseas direct investment in the Chinese Mainland. By the end of 2011, among all the overseas-funded projects approved in the Chinese Mainland, 43.8% were tied to Hong Kong interests. Cumulative utilized capital inflow from Hong Kong amounted to US$525.6 billion, accounting for 45.1% of the national total. Hong Kong is also the leading destination for China’s FDI outflow.  According to Chinese statistics, by 2011, the stock of FDI going to Hong Kong accumulated to US$261.5 billion, or 61.6% of the total outflow of FDI.

Chinese Mainland is one of the leading sources of inward investment in Hong Kong. According to the HKSAR Census and Statistics Department, the mainland's cumulative direct investment in Hong Kong was US$401 billion or 36.7% of Hong Kong’s total stock of inward direct investment at the end of 2010. As of December 2011, 640 mainland companies were listed in Hong Kong, comprising H-share, red-chip and private companies with total market capitalization of US$1.2 trillion, or 55.5% of the market total. 

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Hong Kong's Trade with the Chinese Mainland *

Hong Kong was the Mainland's third largest trading partner (after the US and Japan) in 2011. According to China's Customs Statistics, bilateral trade between the Mainland and Hong Kong amounted to US$283.5 billion (7.8% of the Mainland's total external trade) in 2011. Of which exports from the Chinese Mainland to Hong Kong stood at US$268 billion, making Hong Kong the second largest export market after the US.

The Mainland has been Hong Kong's largest trading partner since 1985. Share of the Mainland in Hong Kong's global trade jumped from 9.3% in 1978 to 48.5% in 2011. The Chinese Mainland was Hong Kong’s largest import source accounting for 45.1 of Hong Kong’s total imports, and the largest export market accounting for 52.4% of Hong Kong’s total exports in 2011.

Hong Kong's trade with the Chinese Mainland is to a large extent related to outward processing activities. In 2011, 31.8% of Hong Kong's total exports (of which 15.5% of Hong Kong’s domestic exports and 32.1% of re-exports) to the Chinese Mainland were related to outward processing activities. Meanwhile, 47.4% of Hong Kong‘s imports from the Mainland and 72.6% of Hong Kong's re-exports of the Mainland origin to all countries other than China were related to outward processing.

Hong Kong's Trade with the Chinese Mainland

Unit
(US$ million)

2011 Jan-Jul 2012
Value Growth
(+/--,%)
Ranking Value Growth
 (+/--,%)
Ranking
Total exports 224,020 9.3 1 129,433 0.8 1
  Domestic exports 3,936 -1.7 1 1,893 -19.1 1
  Re-exports 220,084 9.6 1 127,539 1.1 1
Imports 217,539 10.9 1 126,291 3.3 1
Total Trade 441,559 10.1 1 255,723 2.0 1
Trade Balance 6,480     3,142    

Sources:  Hong Kong Trade Statistics, Census & Statistics Department /  Hong Kong Trade Development Council
* Since offshore trade has not been captured by ordinary trade figures, these numbers do not necessary reflect the total business managed by Hong Kong companies. 

 

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Market Profiles on Chinese Cities and Provinces
http://www.hktdc.com/info/mi/a/mpcn/en/1X06BOQA/1/Profiles-Of-China-Provinces-Cities-And-Industrial-Parks/China-Cities-Provinces.htm 


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