Today, KPMG's Global China Practice (GCP) issued the first edition of the KPMG Review of China's Economic Globalisation in Beijing.
The quarterly review aims to provide a comprehensive analysis of China's major economic indicators and policies in the first half of the year, interpret trends in the macro economy, major sectors, offer up-to-date information on the latest inbound and outbound developments, and forecast the future of high-profile industries.
Peter Fung, Chair of GCP, remarked: "Macro-economic indicators show that China’s economy continues to slow down in the first half year. Major indicators include the 9.5% year-on-year increase in scaled industrial added value in June, which is weaker than markets’ projection. And the 3% year-on-year drop in actual use of foreign capital in the first half year, largely due to the European economic crisis, the increased cost of production factors, and the weak real estate market."
Fung also mentioned that, as export and investment demand rebounded in the first half year, there would be little chance of a hard landing for China’s economy. Meanwhile, the economy is expected to enjoy stable growth in the second half year thanks to weaker inflation data, adjustable monetary policy, and positive effects of approved stable growth-centred policies.
The review gives an analysis of China's inbound and outbound investment. In the first half of the year, China's indirect outbound investments (non-financial category) amounted to USD 35.42 billion, a year-on-year increase of 48.2%. Where inbound investments are concerned, China's actual use of foreign investments totalled USD 59.1 billion, a year-on-year drop of 3% due to the impact of the international economic environment.
Fung said: "We discovered a new trend in China’s inbound and outbound investments through analysis of capital flow and structure. Specifically, with respect to overseas investment, China has increased direct investment to Europe and America, which shows how emerging Chinese enterprises are keen on technology and markets in Europe and America. China's outbound M&A was spread across 34 countries, with America and Canada receiving the largest investment flows. M&A by Chinese enterprises was directed mainly at the energy and power sectors, with other investment in the oil and natural gas and materials sectors.
Regarding the use of foreign investment, Peng Yali, head of research at GCP, believes "Despite the fact that in the first half year, China's use of foreign investment dropped, the structure of capital is evolving towards industrial optimization. This is in line with the goal of attracting foreign investment; i.e., improving the business environment for enterprises and exploiting potentials in the markets, thus driving the development of the economy as a whole."
Peter Fung explained further: "Given the economic data in the first half of the year, we don’t foresee a hard economic landing in China, nor do we believe it necessary to worry about deflation. There are many signs showing that stable growth-centered measures have started to work. As the lagged effects of stable growth-centered policies begin to emerge and the external economic trends become clear, the economy’s increased pace should stabilize in the 3rd and 4th quarters. However, if external demand remains weak and addressing internal structural issues requires time, we should not be over-optimistic about a rebounding growth rates in the second half of the year. As a result, we estimate that growth for the whole year will be approximately 8%."
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