China’s economic appeal is far from over, at least according to a 2019 member survey of the US-China Business Council (USCBC), which suggests that the Chinese market is still prioritised by investors over other markets. The survey found that 97 per cent of USCBC members experienced profitability growth in China over the past year.
Despite the less-than-stellar outlook, which is particularly compounded by the 2019 novel Coronavirus (2019-nCoV) scare, China continues to attract investments.
With the recently released figures on the country’s software and IT sector, investment movement, especially in the IT industry, is set to grow further.
The positive investor sentiment re-echoes the positive outlook presented in a Standard Chartered report that describes the world’s second-largest economy as a top-three priority for five out of 10 investors.
The report reveals that 49 per cent of global institutional investors list China as one of their top three investment destinations even with the uncertainties on the country’s market conditions. Additionally, 67 per cent of the investors surveyed affirmed the high demand for exposure to China as they expressed intentions to raise their Chinese investments in the year ahead.
21 per cent of the survey respondents regard China as a top (number one) priority while 28 per cent consider it a top three priority. Only 2 per cent say that the Asian economic powerhouse is not a priority, while 12 per cent think of it as a niche priority and 37% list it as one of their top 10 investment options.
It also bears pointing out that the 2019 World Investment Report ranks China as the world’s second-largest FDI recipient. It is also hailed as the second most attractive country for multinational companies for the 2017-2019 period.
Strong IT sector growth
Official data from the Chinese government reveal robust growth for China’s software and IT industry in 2019. This component of the Chinese economy generated RMB 7.18 trillion in revenues (approximately US$1 trillion), an impressive 15.4 per cent growth from the previous year.
Also read: How to start a business in China as a foreigner
In addition to the significant rise in revenue, the data presented by the Chinese Ministry of Industry and Information Technology show that profits reached 936.2 billion yuan (around USD$134 billion), a year-on-year increase of 9.9 per cent.
Moreover, the Chinese software and IT sector hired more employees in 2019. Data show that the country hired 6.73 million employees in the sector, a 4.7 per cent year-on-year increase. Even better, the IT labor force received a 6.8 per cent per capita salary increase.
Defying expectations
Multinational businesses can attest to this notable growth amidst forecasts of slowing growth for the economies of Asia. One company that demonstrated such projection-defying developments is European IT company TenderHut.
Posting a 50 per cent year-on-year growth for 2019 with a US$9.6 million revenue, the company is taking advantage of the many opportunities presented by the unpredictable but generally positive global economy. The firm undertook a number of strategic takeovers, developed foreign divisions, launched new startup projects, and raked a few prestigious awards along the way.
“After a period of intensive consolidation of the IT industry, we have entered a time of strategic investments, which, in the coming years, will lead us to maximization of profits and expansion to other markets,” said Robert Strzelecki, President of the TenderHut Capital Group.
The startup maintains an optimistic outlook for the Chinese market that it designated its Guangzhou office as the seat of the Chinese Solution4Labs operation.
The local office implements specialised laboratory software on the local market, in contrast to most other companies that only operate in China to take advantage of local labor. There is a clear intention to leverage Chinese demand in achieving market scale.
New investment access routes
New investment access routes have emerged as China continues to attract domestic and foreign investors.
For example, when it comes to equities, the scheme that connects the Shanghai and Hong Kong stock markets— referred to as the Shanghai-Hong Kong Stock Connect—is already used by 51 per cent of the investors surveyed.
An additional 18 per cent said that they plan on using the scheme in the succeeding year. For fixed-income investments, around 33 per cent of the respondents said that they are considering the China interbank bond market.
The presence of new access channels, however, does not mean that investors have already abandoned the older schemes. As the Standard Chartered study reveals, 62 per cent of investors said that they are still using the Qualified Foreign Institutional Investor (QFII) scheme, while 31 per cent said they use the Renminbi Qualified Foreign Institutional Investor (RQFII) scheme.
Risks and threats
Unfortunately, China is facing a serious economic threat in the ongoing Wuhan novel coronavirus problem. To date, there are still no signs of the infection slowing down.
The severe health scare is causing factory shutdowns and a daunting impact on economic activity. People are advised to work from home, although those in the manufacturing industry will find this challenging. Inflation has sharply risen as food prices soared.
The tech industry has not escaped the adverse consequences. Numerous companies have temporarily closed their stores, offices, and factories. These have resulted in product shortages and delays in product launches. The Chinese economy is logically suffering a slowdown as the disease directly affects industries that comprise more than half of the country’s GDP.
Also read: Why China should be the next market for your startup or scaleup
Some analysts, however, are hopeful that the problem will not linger for long. Wang Huiyao, founder of the Centre for China and Globalisation, believes China’s economy has become more resilient compared to 2003 when it tackled the SARS outbreak.
Huiyao is confident that China’s deeper resources, more effective policy levers, and improved production capacity and technology make it more capable to weather the crisis. On the other hand, Zhang Jun, dean of Fudan University School of Economics, believes that the coronavirus is unlikely to cripple China’s economy.
China’s new foreign investment law takes effect this year, which is expected to help boost capital inflows as it trims the negative list for foreign investment.
The challenges from the novel Coronavirus will need to be overcome, however, in order to achieve the expected benefits of this significant piece of legislation.
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