{"id":15793,"date":"2016-03-02T18:42:07","date_gmt":"2016-03-02T10:42:07","guid":{"rendered":"http:\/\/westchina.austcham.org\/?p=15793"},"modified":"2016-03-02T18:42:07","modified_gmt":"2016-03-02T10:42:07","slug":"kpmg-china-outlook-2016","status":"publish","type":"post","link":"https:\/\/westchina.austcham.org\/?p=15793","title":{"rendered":"China\u2019s economic restructuring impacts ODI and FDI patterns, leading to more opportunities in high value-added sectors, finds a KPMG report"},"content":{"rendered":"

\"KPMG_News\"<\/a><\/p>\n

2 March\u00a02016<\/em><\/p>\n

China\u2019s inward and outward investment patterns are reflective of the country\u2019s economic restructuring. This is likely to continue to be the case in 2016 and beyond, with opportunities increasingly found in those sectors and areas whose development will contribute towards China\u2019s transition into a high value-added economy, a KPMG report finds<\/em>.<\/p>\n

KPMG\u2019s Global China Practice (GCP) recently published China Outlook 2016<\/em> finds that China\u2019s transition from an investment- and export-led growth model to one driven by consumption and innovation has led to the emergence of a two-track economy. The first track, in basic manufacturing and traditional industries, is experiencing significant headwinds, while the second, in services, advanced manufacturing and consumer markets is exhibiting strong growth potential.<\/p>\n

\u201cProperly understanding the objectives of China\u2019s economic development, the policy settings which are being implemented to steer this transition, and the progress which has already been made, are all key to understanding the drivers, trends and outlook for Chinese investment overseas, and for foreign investment in China,\u201d says Vaughn Barber, Global Chair of KPMG\u2019s GCP and Deputy Chair of AustCham Beijing.<\/p>\n

The Chinese government introduced a number of major policy initiatives in 2015 to facilitate the country\u2019s economic transformation, tackle overcapacity issues, increase productivity, promote innovation and entrepreneurship, and enhance the international competitiveness of China\u2019s traditional industries. Importantly, rather than focusing on the speed of growth, these initiatives place importance on the quality of growth in order to achieve a more balanced level of development that is conducive to long-term prosperity. This is expected to continue to be a feature of China\u2019s policies over the next few years, especially following the release of the 13th<\/sup> Five-Year Plan in March 2016.<\/p>\n

\u201cChina\u2019s adjustment is taking place in a slower-growth environment, which, taken together with other competitive and market factors, is presenting significant challenges for business. At the same time, we see new growth opportunities in sectors whose development will assist in China\u2019s economic transformation, and the government is channelling investment into these areas,\u201d says Thomas Stanley, Chief Operating Officer of KPMG\u2019s GCP.<\/p>\n

 <\/p>\n

Chinese Overseas Direct Investment (ODI)<\/strong><\/p>\n

Chinese non-financial outbound investment hit a record high of USD 118.02 billion in 2015, recording a 14.7 percent year-on-year increase. The value of announced deals recorded a 40 percent increase over the same period to reach USD 87.7 billion. Chinese outbound M&A activity continued to be focused on \u2018quality growth\u2019 with not only more, but also larger deals being announced in high value-added and consumption-related sectors. Consistent with this, more deals were done in developed markets, with many involving privately-owned enterprises (POEs). Given this rapid growth, Chinese outbound M&A may be on track to surpass the USD 100 billion mark this year. Indeed, the first few weeks of 2016 showed no signs of this trend abating, with a staggering USD 74.8 billion of deals being announced in the period up to 18 February.<\/p>\n

KPMG\u2019s GCP expects China\u2019s ODI will continue to grow by more than 10 percent per annum, driven by factors including Chinese companies\u2019 desire to acquire experience, technology, brands and human capital to become more competitive, and to access high-quality products and services that can be deployed in China to meet its evolving consumption trends. Agriculture and food, infrastructure, high-end manufacturing and real estate will continue to be important sectors in 2016, while ICT, healthcare and transportation are new \u201chot\u201d sectors to watch.<\/p>\n

KPMG\u2019s GCP also predicts more overseas investment by POEs and financial investors, as well as more win-win cooperation between Chinese and foreign companies. \u201cA key feature of the \u2018new normal\u2019 for China\u2019s relations with the rest of the world is \u2018cooperation\u2019 and \u2018collaboration\u2019, both in China and in markets outside China, to the mutual benefit of China, the partnering countries and the third-country markets,\u201d says Vaughn Barber.<\/p>\n

North America, Europe and other developed economies are expected to attract more investment as the availability of high-quality targets in those regions can help Chinese companies upgrade, transform and boost their competitiveness. More projects and investments will be undertaken along the ‘Belt and Road’, as the objectives come to be better understood and the mode of implementing this initiative continues to evolve over the coming year.<\/p>\n

Careful attention should be paid to three positive drivers of Chinese ODI in 2016, namely China\u2019s advancement of a new paradigm of international cooperation \u2013 through its \u2018Belt and Road\u2019 initiative for example \u2013 the emergence of new funding sources, and the recently-signed free trade agreements with Australia and South Korea.<\/p>\n

 <\/p>\n

Foreign Direct Investment (FDI)<\/strong><\/p>\n

China Outlook 2016<\/em> finds that non-financial FDI into China in 2015 increased by 6.4 percent year-on-year to reach an all-time high of USD 126.3 billion. There were fewer but larger inbound M&A deals, representing an increase in average deal size as higher value, more expensive Chinese companies were acquired.<\/p>\n

In line with the emergence of a two-track economy in China, the service sector represented 61.1 percent of total FDI in 2015, while FDI into manufacturing accounted for 31.4 percent. As a comparison, 63.6 percent of China\u2019s total FDI went into the manufacturing industry in 2006, while the service sector attracted 31.1 percent.<\/p>\n

According to KPMG, the Chinese government has launched a number of policies and initiatives to encourage FDI in 2016 and beyond. These present significant opportunities for companies with targeted, well-positioned value propositions that deliver against emerging customer needs while simultaneously delivering a strong value proposition to the government\u2019s development goals.\u00a0 Government spending will pivot to the \u2018lean, clean and green\u2019 categories that seek to improve healthcare coverage, reduce environmental impact, strengthen food safety and security, and ameliorate pollution conditions.<\/p>\n

Recent policy publications indicate authorities are committed to opening up the service and manufacturing sectors to foreign capital, and loosening restrictions in the finance sector. China\u2019s FTAs with Australia and South Korea, the establishment of new Free Trade Zones (FTZs) in Guangdong, Fujian and Tianjin, and the expansion of the Shanghai FTZ will assist in this process. Likewise, authorities are trying to leverage the latest advances in information communication technology, advanced manufacturing and automation technologies to increase the productivity of the country\u2019s traditional industries, bringing opportunities to foreign companies with expertise in these fields. The deepening of China\u2019s SOE reform should lead to more acquisition targets for, as well as wider market access to, foreign companies.<\/p>\n

David Frey, Partner, Markets Strategy, KPMG China, says: \u201c2016 will be a pivotal year in China, both for the government and for global companies and investors. Surviving and thriving in the \u2018new normal\u2019 requires companies to think about new and innovative means of partnering to seize opportunities in a rapidly transforming economic landscape, and to understand the important role that an increasingly affluent middle class will play in driving this change. This is not to underestimate the challenges of being successful in China. But can a multinational that does not compete and win in China compete and be successful globally in the future?\u201d<\/p>\n

The service sector will continue to grow, with e-commerce and logistics driving FDI opportunities. High-tech manufacturing will be another important sector, while the healthcare and environment sectors are areas to watch in 2016.<\/p>\n

Click here<\/a> to read the full report
\nVisit\u00a0KPMG’s website<\/a>\u00a0to read more about China Outlook 2016<\/p>\n

About KPMG<\/strong><\/p>\n

KPMG is a global network of professional firms providing Audit, Tax and Advisory services. We operate in 155 countries and have more than 174,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative (\u201cKPMG International\u201d), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.<\/p>\n

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\u2019s appointment by some of China\u2019s most prestigious companies.<\/p>\n

Today, KPMG China has around 10,000 professionals working in 17 offices: 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.<\/p>\n

KPMG\u2019s Global China Practice (GCP) is a community of professionals providing high-quality, consistent services to China inbound and outbound investors around the world. With teams of China experts, cross-border investment advisors and Mandarin speakers in around 60 strategic investment locations around the world, GCP brings insights, innovative approaches and investment experience to our Chinese clients investing overseas, and our multinational clients interested in investing or expanding in the China marketplace.<\/p>\n

Media contacts:\u00a0<\/strong>
\nNina Mehra
\nDirector, Media and Publications, KPMG China
\nDirect:\u00a0 \u00a0 \u00a0+852 2140 2824
\nMobile:\u00a0 \u00a0 +852 9724 6092<\/p>\n

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