With China’s economic growth picking up in 2017, consumption growth, manufacturing investment and greater demand for exports are expected to be key growth drivers in 2018, finds KPMG China’s latest quarterly analysis.
The report, titled China Economic Monitor – Q1 2018, analyses China’s economic development in 2017 and discusses the outlook for 2018. The publication also examines major topics including regional economic development, artificial intelligence and fintech.
Among key highlights, China’s GDP grew by 6.8% in Q4 and 6.9% for the whole year in 2017. The growth rate was 0.2 percentage points higher than in 2016, marking the first pick-up in growth since 2010. Accelerating service sector growth and greater demand for exports were the main drivers of the pick-up in growth.
The tertiary industry (services) grew by 8% in 2017, up 0.3 percentage points from 2016, outperforming the primary and secondary industries for the fifth consecutive year. The service sector contributed to 58.8% of overall economic growth, marking a record high. Thomas Stanley, National Markets COO at KPMG China, says: “China’s service sector has seen rapid growth in recent years, especially in advanced service sectors such as information technology, business services and R&D. This is an important driver for the transformation and upgrading of China’s growth model.”
The report shows that net exports contributed 0.6 percentage points to the overall growth in 2017, a sharp increase compared to 2016 (when it reduced overall growth by 0.4 percentage points). Meanwhile, consumption and investment contributed 4.1 percentage points and 2.2 percentage points to GDP growth, respectively, both lower than in 2016.
Meanwhile, the report notes that infrastructure and real estate investment growth is expected to slow in 2018, and the continued strengthening of financial regulation indicates that the credit market will remain relatively tight.
The publication also highlights three key themes for China’s economic development in the next several years, including high quality development and the emerging ‘green economy’. Kevin Kang, Chief Economist at KPMG China says: “Additionally, preventing and mitigating major risks, especially financial risks, is a top government priority. The Central Economic Work Conference over the past three years has repeatedly stressed the bottom line of “no systemic financial risks”, which indicates that stronger financial supervision will continue in 2018.”
In addition, the report indicates that building a green ecosystem is a long-term strategy for China’s sustainable development. While higher environmental standards will raise the operating cost of polluting industries, green development will also provide new business opportunities for low energy-consumption enterprises and environmental protection industries.
The report also finds that fintech is seeing particularly strong growth in China, and has penetrated the financial services in areas such as payments, credit, insurance, crowdfunding, wealth management and supply chain finance. Compared with other countries such as the US, Chinese fintech companies focus more on big data analysis – KPMG analysis finds that 94 percent of China's leading fintech companies regard big data as the core technology that drives their growth. In addition, China's fintech companies are particularly strong in areas such as credit and payments.
Arthur Wang, Head of China Banking, KPMG China, says: “The closer cooperation between fintech companies and financial institutions will continue to strengthen. Fintech is also increasingly returning to its technology roots, and making better use of new technologies to serve the financial industry. Meanwhile, with China’s heightened policy focus on reducing financial risks, we expect regulatory technology (regtech) to see faster growth.”
Kang concludes: “China’s growth model is transitioning from one of high speed to high-quality development, which has a far-reaching impact on the country’s consumption, production, investment and trade. In response, companies need to rethink their strategies to innovate and capitalise on the new business opportunities that are arising from this transformation.”
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KPMG China operates in 16 cities across China, with around 12,000 partners and staff in Beijing, Beijing Zhongguancun, Chengdu, Chongqing, Foshan, Fuzhou, Guangzhou, Hangzhou, Nanjing, Qingdao, Shanghai, Shenyang, Shenzhen, Tianjin, Xiamen, Hong Kong SAR and Macau SAR. With a single management structure across all these offices, KPMG China can deploy experienced professionals efficiently, wherever our client is located.
KPMG is a global network of professional services firms providing Audit, Tax and Advisory services. We operate in 154 countries and territories and have 200,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.
In 1992, KPMG became the first international accounting network to be granted a joint venture licence in mainland China. KPMG China was also the first among the Big Four in mainland China to convert from a joint venture to a special general partnership, as of 1 August 2012. Additionally, the Hong Kong office can trace its origins to 1945. This early commitment to the China market, together with an unwavering focus on quality, has been the foundation for accumulated industry experience, and is reflected in the Chinese member firm’s appointment by some of China’s most prestigious companies.