China Business Forecast Report Q2 2008 : Market Research Report

China Business Forecast Report Q2 2008

Published by: Business Monitor International

Published: Mar. 3, 2008 - 62 Pages

Executive Summary

Pressures Continue To Mount

Chapter 1: Political Outlook

SWOT analysis

BMi Political Risk Ratings

Domestic Politics

Olympics Thrusts human Rights into The Spotlight

The 2008 Olympic Games to be held in Beijing in August will be China’s highest-profile public event to date,

and will - at least symbolically - mark its emergence on the world stage

Table: The State Council and Other Key Posts

Chapter 2: Economic Outlook

SWOT analysis

BMi Economic Risk Ratings

Economic Outlook

GDP Data highlights External/Domestic Trade Off

We expect that economic growth will continue to moderate in 2008, while spill over effects from 2007 and continuing

loose monetary conditions will prevent the authorities from successfully cooling the economy substantially

Table: Economic activity

Monetary Policy

‘Prudent Policy’ no Longer Enough

China has announced its intentions to bring down runaway inflation to within ‘normal’ limits after introducing a

number of inflation-fighting measures in December 2007 and January 2008

Table: Monetary Policy

Trade Outlook

What Does Slower Global Growth Mean For Exports?

With economic growth slowing across China’s main export markets, concerns that the country is heading for a

potentially ruinous ‘hard landing’ are once again surfacing

Table: Balance Of Payments

Demographics

Demographics Point To Mounting Woes

China’s demographic profile points to mounting long-term woes Chief among them, China’s population is ageing

rapidly, a process whose symptoms have been exacerbated by the government’s ‘one-child’ policy

China’s Population Options

Whither The One-Child Policy?

Regional Policy

Chongqing: Gateway To The West

The municipality of Chongqing, the largest and most populous of China’s four provincial-level municipalities,

has been dubbed ‘China’s Chicago’ as the government primes it to become a key strategic link between the

east and west of the country

Chapter 3: Special Report

Looking Beyond 2008

The Future Of The World, in Three acts

US: The Rebalancing act

Unwinding The imbalances

We believe that a substantial, multi-year shift in the US external accounts is under way A weak US dollar and

subdued domestic consumption should lead to a narrowing in the US’s structural current account deficit

China: What if We’re all Wrong?

Our Core Scenario For China

We are retaining our positive headline growth projections for China across the forecast period to 2012, with our

expectations of the continued success of the urbanisation process and export-driven growth model underpinning

our assumptions

Japan: immigration Key To Long-Term Growth

Demographic Woes Portend Long-Term Decline

Immigration remains the only realistic way that Japan can overcome its long-term economic challenges

Chapter 4: Business Environment

SWOT analysis

BMi Business Environment Risk Ratings

Business Environment Outlook41

Table: BMi Business and Operational Risk Ratings

institutions

Table: BMi Legal Framework Ratings

infrastructure

Market Orientation

Table: Asia, FDI Inflows

Table: Top Export Destinations

Table: BMi Trade Ratings

Operational Risk

Chapter 5: Key Sectors

Tourism Forecast

Executive Summary

We anticipate Olympic-related arrivals to boost 2008 tourist arrivals as a whole by 10% year-on-year, after growth

of 4-6% year-on-year for much of the previous decade

Table: China’s Tourism industry - investment and Employment

For the 2007-2012 forecast period we expect the transport and communications sector to continue outpacing

the economy as a whole It will achieve average annual growth of 107%, versus 96% for overall GDP

Freight Transport Forecast

Executive Summary

Table: China Freight Transport industry Forecast

Abstract

Olympic Year, Olympic Challenges

While we expect GDP expansion to continue to slow in 2008, we nonetheless feel that spill over
effects from 2007 and continuing loose monetary conditions will prevent the authorities from successfully
cooling the economy substantially and are thus forecasting economic growth of 10.7% in
2008. This would represent a continued moderation from Q 07, when annual GDP growth slowed
to 11.2% y-o-y, from 11. % in Q 07 and 11.9% in the March-June period. However, full-year growth
in 2007 nonetheless reached a 1 -year high of 11. %, meaning that the Chinese authorities will
maintain their tightening bias in 2008.

The 2008 Olympic Games to be held in Beijing in August will be China’s highest-profile public event
to date, and will - at least symbolically - mark its emergence on the world stage. Thus China’s
top priority in the run up to the Games is to ensure that they pass smoothly and that they cast
the country in the best possible light. However, Beijing’s heavy-handed approach in doing so is
attracting increasing criticism and threatens to undermine the government’s efforts. Meanwhile,
attentions will be focused in the short term on China’s five-yearly reshuffle of the National People’s
Congress (NPC, parliament) in March.

China will continue to struggle in its fight against runaway inflation, which hit an 11-year high of
6.9% in December 2007. The People’s Bank of China (PBoC) elected to raise the one-year
lending rate by 18bps to 7. 7% and the one-year deposit rate by 27bps to .1 % on December
20 2007, but we retain our view that the bank’s ability to implement further rate hikes will remain
limited. With options running out, the Chinese authorities appear to have relaxed their crawling
peg currency regime to allow faster currency appreciation. Having gained 6.86% in 2007 to close
the year at CNY7. 0 1/US$, we are forecasting the yuan to rise to CNY6.7000/US$ by the end of
2008, implying gains of approximately 9.0%. We also expect this pace to be matched in 2009 as
the unit moves towards CNY6.1 00/US$ by year end.

With its vast supply of cheap labour and rapid economic growth China remains the top destination
for foreign direct investment (FDI) in the developing world. Positively, the Chinese government is
increasingly giving more protection and encouragement to the burgeoning private sector, which is
now the most dynamic in the economy and accounts for most of the country’s job growth. However,
the command nature of its economy means that bureaucracy remains a key obstacle to doing
business within the country and the legal framework is still weak despite two decades of reform.

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China Business Forecast Report Q2 2008

Table of Contents

Abstract