China remains a hugely important investment destination for many of our clients. It is the most populous country in the world and the largest importer and exporter of goods. China is the largest recipient of foreign direct investment in the Asia-Pacific region, while a large number of the country's up-and-coming companies also invest enormously overseas. Our coverage – using our unique Total Analysis model – ensures that our clients make sound investment decisions in the country. We keep them informed of the latest market moves and political developments as part of our 'top-down' and 'bottom-up' perspective. They also benefit from in-depth analysis on 24 of China's most important industries. We provide interactive data and forecasting alongside detailed and risk-assessed analysis from our results-proven research teams. Our aim is for you, as our client, to feel totally at ease doing business in China.

Country Risk

China Country Risk

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Core Views

  • Beijing will continue to implement positive structural reform measures such as deposit rate liberalisation and local government fiscal reforms. That said, we believe that the People's Bank of China will also continue to ease policy in order to support economic growth, and that high debt levels are therefore unlikely to be addressed in the near-term.

  • Xi Jinping has largely consolidated his leadership position, and we believe that he is firmly in control of the Communist Party. This means that policy-making will remain highly centralised and generally cohesive over the medium term. While there remain divides on how to manage the economy, we continue to believe that the government will opt for the middle road of structural reforms with moderate monetary and some fiscal stimulus.

Major...

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China Operational Risk Coverage (9)

China Operational Risk

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BMI View: China's enormous domestic market and globally integrated supply chains will see the country continue to attract huge interest from foreign investors over the next five years, regardless of the rigidly regulated business environment. Nevertheless, an uptick in indiscriminate terror attacks across the country and a looming hard landing following credit-fuelled economic expansion will continue to cloud China's investment outlook.

The sheer size of China's economy and population mean that it will remain an attractive market for foreign investors, as is evidenced by the country boasting the largest foreign direct investment (FDI) inflows of any developing country worldwide. Nevertheless, we remain cautiously pessimistic in regard to the overall outlook for the Chinese economy over the next five...

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China Crime & Security

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BMI View: China poses considerable security risks for foreign business travellers, expatriates and tourists. The most salient problems for business operations in the country are street crime, cyber crime and indiscriminate terrorism (especially in Xinjiang Province). There is also a heightened risk of interstate conflict due to several ongoing territorial disputes with neighbouring countries. Consequently, China scores below the regional average in the BMI Crime and Security Risk Index, with 48.7 out of 100 placing the country 18th out of 30 states in Asia.

The most pertinent risks faced by foreigners in terms of crime is pick-pocketing, robbery and financial fraud. Reporting crimes to the police is made complicated by the lack of English-language skills on the part of the...

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China Labour Market

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BMI View: Although the labour market in China is tightly regulated with regards to contracting foreign workers and employer contributions, it remains the largest workforce on the planet and is set to remain so for the foreseeable future, despite the country's demographic decline. In addition, China has made rapid progression in terms of education provision since the beginning of the 21st century, and now produces the most university graduates in highly sought-after technical disciplines, which ultimately reduces the need for foreign investors to import labour in the first instance. As a result, BMI awards China a score of 52.1 out of 100 for overall Labour Market Risk, placing the...

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China Logistics

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BMI View: China boasts an extensive and well-developed logistics network which has benefited from significant investment in order to enable it to meet the demands of the country's rapid economic growth. There is good coverage of both utilities and transport infrastructure, with supply chains particularly gaining advantage from the quality of freight mode options and extensive maritime and air trade links. Although expansion of industry and trade volumes will be hindered by the economic slowdown, the demands of key economic sectors and supply chains will continue to place a strain on the logistics network. Consequently, the risk of disruption to business operations due to electricity and water shortages, road and port congestion, and workers strikes, will remain pertinent over the medium term. China...

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China Trade & Investment

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Foreign investors in China are able to take advantage of the country's huge domestic market, investment incentives in high value-added sectors and R&D expenditure, and relatively stable political environment. Nevertheless, corruption within business and politics remains pervasive in spite of targeted anti-corruption initiatives, and intellectual property protection remains weak. State-owned enterprises enjoy preferential treatment over foreign entities in areas such as credit allocation, taxation and legal protection. Taking these factors into consideration, BMI awards China a score of 48.2 out of 100 for overall Trade and Investment Risk, placing the country 14th out of 30 in Asia.

Although the Chinese government has openly declared that it welcomes foreign investment, the state maintains arbitrary restrictions on a number of key sectors in the economy. For instance, the government will not allow foreign...

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China Industry Coverage (24)

Agribusiness

China Agribusiness

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BMI View:  China's weight in the global agricultural sector is growing, as the country has an increasing impact on international production balances and prices. In particular, we highlight the growth potential for sugar, dairy and meat products as China maintains its strong appetite for key commodities. High demand growth, strong government support and potential for investment and consolidation in these industries will help them outperform in the coming years. However, the agribusiness sector is going through challenging times as GDP slows, consumer trust in food safety dwindles, food ingr...

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Autos

China Autos

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Auto Sales

According to the China Association Of Automobile Manufacturers (CAAM), vehicle sales in June 2014 rose 5.2% year-on-year (y-o-y), to 1,845,800 units, bringing sales for H114 to 11,683,100 units, an increase of 8.4% y-o-y. It is important to note, however, that sales in June grew at the smallest y-o-y pace since March 2013 and were dragged down by the commercial vehicle (CV) segment, which contracted 19.7% y-o-y in the same month. While we are maintaining our passenger car sales forecast for 2014, we are downgrading our CV sales forecast due to the segment's poor performance year-to-date.

Economic Rebalancing Biting Into CV Demand

As fixed-asset investment slows and infrastructure spending cools (in part due to Beijing's reticence towards large-scale stimulus to prop up economic growth), it is only natural that demand for CVs will be hit...

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Commercial Banking

China Commercial Banking

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Commercial Banking Sector Indicators
Date Total assets* Client loans Bond portfolio Other Liabilities and capital* Capital Client deposits

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Consumer Electronics

China Consumer Electronics

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BMI View: The outlook for consumer electronics spending growth in China is strong over the medium term as incomes continue to grow and vendors tap the relatively low penetration in key device categories. An additional boost is the package of economic and social reforms announced by the government in late 2013, which should boost consumption, which had been effected to some extent by the cessation of government subsidies in 2013. We forecast the market value will grow by...

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Defence & Security

China Defence & Security

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BMI View: China has continued its assertion of dominance in the South China Sea over several incidents in the past year. This has raised tensions between its Asian neighbours as well as the U.S. and has even caused a standoff between militaries. Although China has begun to make political moves, deals and visits to ease these tensions, many speculate that these are more for show rather than sincere negotiations. Again, little is truly known about China's domestic situation due to its blockade against news leaving the country.

China's defensive position and plans are difficult to fully confirm due to China's secrecy on such matters. Like many aspects of its defence posture, China keeps its annual defence budget secret, nevertheless, it is possible to make an accurate estimate regarding what the country spends annually on defence. China is one of the worlds largest...

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Food & Drink

China Food & Drink

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In China, we forecast private consumption to grow by an average of 8.1% out to 2018, as Beijing tries to re-balance the economy towards consumption and away from investment. Although this will be a very difficult balancing act, given that it could result in a sharp slowdown in overall growth, the Xi Jinping and Li Keqiang administration is somewhat more hawkish than previous leaders and will continue to press ahead with economic rebalancing. Important policies include raising minimum wages, liberalising the financial sector as well as the implementation of safety nets such as unemployment benefits and insurance.

Headline Industry Data

  • 2014 food consumption local currency = +9.7%; compound annual growth rate (CAGR) forecast between 2013 and 2018 = +9.3%.

  • 2014 beer volume sales = +8.9%; CAGR forecast between 2013 and 2018 = +8.7%.

  • ...

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Freight Transport

China Freight Transport

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BMI View:  BMI maintains its cautious outlook for China's freight transport volumes for Q1 2015. We continue to believe that the hangover effects of China's economic stimulus are yet to be felt, and cooling credit growth is likely to reveal these effects over the coming quarters. Newfound reform momentum has the potential to help the economy grow out from under its credit excesses; however, several obstacles stand in the way of this, including the likelihood that reform efforts could exacerbate any economic downturn. We maintain our forecast for real GDP growth to slow further to 6.7% in 2015, and note that aggressive stimulus measures are off the table as long as the country's labour markets remain stable...

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Information Technology

China Information Technology

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BMI View:   China continues to outperform in terms of IT spending growth and IT sector development due to a mix of economic strength and a forward-looking policy environment. Despite rapid growth in the past decade the market remains attractive with strong growth prospects resulting from (inter alia) the size of population, rising incomes, relatively low market penetration and a supportive political environment. IT spending growth in China is expected to outperform on a regional and global basis, with a CAGR of 10.0...

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Infrastructure

China Infrastructure

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BMI View : The continued use of monetary and fiscal stimulus measures by the Chinese government at the expense of structural reforms suggests that near-term growth in China's infrastructure and construction sectors could be stronger than previously expected. That said, we still expect China's construction and infrastructure sectors to experience a structural slowdown over the long-term. The key reason for this outlook is our belief that the basis for the increase in fixed asset investment is through the rise in liquidity in China's financial system, an unsustainable investment model due to the diminishing marginal return on expenditure.

Key Trends And Developments

  • Although the Chinese central government is increasingly...

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Insurance

China Insurance

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BMI View : We expect growth in China's insurance sector to remain on an uptrend in the coming years due to the under-penetrated nature of the industry. However, increasing saturation in tier-one cities will push insurers to expand into lower tier cities. The ongoing liberalisation of the healthcare sector will unleash new growth opportunities within the health insurance sub-segment.

We forecast total gross premiums to slowdown in 2015 after growing by strong double-digit rates in 2014. We anticipate growth in premiums to come in at 5.5% (in USD terms) in 2015 versus 15.3% in 2014. The slowdown in the market is inevitable after strong double-digit expansion in each of the past three years. Furthermore, it is in line with our Country Risk team's view that the ongoing weakness in the Chinese economy will continue in the coming months, which will inevitably weigh on premiums.

...

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Medical Devices

China Medical Devices

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BMI Industry View: Despite a slowdown in some sectors, China remains one of the fastest growing medical device markets in the world, which on the back of its vast market size, offers huge potential to medical device companies. However, the market environment is undergoing rapid change with a raft of new regulatory measures, which coupled with government incentives to develop local manufacturing and boost consumption of locally-produced products, ...

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Metals

China Metals

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BMI View:  China's metals industry is set to face more pain ahead in the face of cooling Chinese economic growth and Beijing pledge to induce more supply discipline in heavy industry.

We expect China's metals industry to come under pressure from cooling Chinese economic growth over the coming years. More domestic smelters will struggle to survive in the face of falling profit margins, sluggish demand and waning support from the local governments. The rebalancing of China's economy away from fixed asset investment and towards private consumption will significantly drag on demand growth for construction-related materials. Industrial metals such as steel and nickel will be particularly affected given their heavy exposure to the construction sector.

...

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Mining

China Mining

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BMI View: More Chinese miners will cease operations over the coming quarters due to falling mineral prices and waning support from the local governments.

We expect more Chinese miners to come under pressure over the coming quarters due to falling mineral prices and Beijing's pledge to instil more supply discipline in heavy industry. While state-owned firms are generally more insulated from the weakness in commodity prices, the economic slowdown in China will diminish the financial resources of these firms, forcing them to preach greater austerity in the medium term.

China Slowdown To Drag On Mineral Prices
Select Commodity Prices (% chg y-o-y)
...

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Oil & Gas

China Oil & Gas

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BMI View: We have upgraded our short-term forecast for Chinese oil consumption on expectations that lower oil prices will give demand a brief boost, though longer term demand will still be constrained by structural issues in the Chinese economy. Oil production forecasts have been downgraded, as higher oil prices will hit expensive EOR and unconventional projects which are needed to maintain China's oil output.

Headline Forecasts (China 2012-2018)
2012 2013 2014f 2015f ...

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Petrochemicals

China Petrochemicals

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BMI View: Growth in coal-based polymer production risks creating a glut in supply in 2015 as domestic demand moderates, leading to a decline in prices and pressure on margins, according to BMI 's latest China Petrochemicals Report.

The January to October period of 2014 saw ethylene output growth lag behind the growth in cracker capacity, leading to a reduction in overall capacity utilisation which was running at around 70% in 2014. Revenue is rising, but not as fast as hoped due to the market downturn. China's petrochemical industry turnover hit CNY14.5trn (USD2.36trn) in 2014. Exports rose 6.2% to USD513.3bn in the first three quarters of 2014.

On the upside, plastic production growth was in double figures, but this growth is threatened by a domestic market downturn, notably the rapidly cooling...

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Pharmaceuticals & Healthcare

China Pharmaceuticals & Healthcare

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BMI View:   Improvements in intellectual property protection, an ageing population and increasing access to healthcare will drive the robust growth of China's pharmaceutical market. This will attract foreign drug manufacturers despite the downside risks of pharmaeconomics and the government's crackdown on illegal practices.

Headline Expenditure Projections

  • Pharmaceuticals: CNY532.4bn (USD86.6bn) in 2013 to CNY616.1bn (USD100.6bn) in 2014; +15.7% in local currency and +16.1% in US...

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Power

China Power

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BMI View: Our Country Risk team has slightly upgraded our 2015 real GDP growth forecast for China, but our outlook for the power sector remains relatively stable. This is because we continue to expect growth in electricity generation and consumption to slowdown in 2015. In terms of electricity generation, the country's growing pollution woes have prompted the central and state-level governments to try and reduce coal-fired generation while encouraging cleaner and costlier alternatives, as reflected in a revised energy strategy that was published by the State Council in November 2014. We note, however, that these alternatives are generally not as scalable or have as short a turnaround time as coal projects. As a result, greater use of these alternatives...

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Real Estate

China Real Estate

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BMI View:  Although we see Chinese economic growth slowing in the medium term, we are optimistic for the commercial property sector as a whole, as the maturing of the Chinese economy means that opportunities for new, premium developments remain plentiful. Reflecting this view, there is significant international interest in investing in Chinese commercial property.

We forecast a slowdown in Chinese economic growth, despite government stimulus measures, from 6.7% in 2015 and to under 6% by the end of our forecast period, in 2018. The government is treading a fine line between continuing with policies to stimulate investment with badly needed market reforms. The market is also being hit by a fall in residential real estate prices, with many predicting that the Chinese property bubble will burst. We do see prices continuing to fall, although in our...

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Renewables

China Renewables

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BMI View: We maintain a positive outlook on the non-hydropower renewable energy sector in China, and our forecasts remain unchanged this quarter. The country will continue to be the fastest growing and the largest market in terms of installed renewables capacity globally.

We have maintained our 2015 forecasts for non-hydropower renewable energy in China this quarter. We expect 11.5GW of solar capacity to come online in 2015, along with 11GW of wind and biomass installations.

We have also maintained our medium-to-long term forecasts for solar capacity this quarter. At present, we forecast non-hydropower renewables capacity to grow by an average of 10.1% per annum between 2015 and 2023. We note that China will be the fastest growing and the largest market (in terms of total installed capacity) for renewable energy in the world for the foreseeable future. Here are the key...

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Retail

China Retail

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BMI View: Rising disposable incomes due to the increasing number of households moving into the USD10,000-plus income bracket will lead to a steady expansion of the Chinese retail sector over the next few years. Household spending is forecast to rise across all retail subsectors, with fashion and consumer electronics set to benefit particularly well from the burgeoning e-commerce sector. However, the greatest proportion of the household budget will continue to be spent on food and drink throughout our forecast period.

The latest China retail report provides an extensive and comprehensive forecast of various retail indicators including household spending and headline total spending across each retail subsector, household income and employment forecasts, demographic forecasts...

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Shipping

China Shipping

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BMI View: We maintain our cautious view for China's shipping sector. China's economic growth in the coming decade will be much slower than in the last, as the savings rate declines, the economic liberalisation process slows, and population growth falls. These dynamics will result in real GDP growth averaging 6.0% over the next decade as opposed to the 10.1% average seen over the past decade. Private consumption will be a major outperformer, averaging growth of 8.1% and rising in importance as a share of GDP. As a result, while the outlook for China's traditional economic growth drivers such as heavy industry and real estate construction remains cloudy, the outlook facing the more consumer-focussed industries is relatively strong over the medium term.

After a decade-long cycle of high commodities prices partly boosted by stellar demand growth in China, the ongoing slowdown of the country's...

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Telecommunications

China Telecommunications

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BMI View : The attractiveness of the Chinese telecommunications market rests on the size of the population and the growing interest in data services. 3G growth drives the mobile market and 4G is taking off quickly. The creation of a national infrastructure company will help rural growth for china Unicom and China Telecom, putting China Mobile at a greater disadvantage. Increased price competition through the introduction of MVNOs will weigh on ARPUs in addition to rate reductions earlier in the year. These moves give the suggestion of an open market, but developments are still closely controlled by the government and the MIIT. However, a focus on development of internet access through the 'Broadband China' strategy roadmap,...

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Tourism

China Tourism

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BMI View : China's tourism market offers enormous potential for growth, with a wide range of attractions drawing in visitors while domestic economic growth provides for one of the biggest outbound travel markets in the world. The BMI   China Tourism report examines expected growth trends across key market indicators throughout the forecast period to 2018, including increasing industry value and the expansion of the hotel sector.

China is maintaining its position as one of the most popular tourism destinations in the world. The country is home to a wide range of attractions, including an impressive 47 UNESCO World Heritage Sites (only Italy has more) and over 2,500 nature reserves. Attractions include the Forbidden City,...

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Water

China Water

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BMI View: This quarter we have extended our forecasts and revised our existing projections in order to include new historical data and take the additional figures into account. We now include extraction by source, non mains consumption, discharged wastewater and treated wastewater. Overall we have a positive outlook for the Chinese water services sector as the combination of vast domestic and soaring industrial water demands, in addition to government programmes to expand the sanitation sector and reduce pollution, ensure strong growth. Furthermore, given that infrastructure still lags behind demand, we view China as offering good potential for infrastructure companies.

The abrupt rise in population and urbanisation has not only stretched the energy infrastructure to its limits, but also put a strain...

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