China 2017 Economic Report

Executive Summary

• China is undergoing a major economic transformation from export-led growth to a model increasingly driven by consumption and services. Structural reforms launched in 2015 as well as the 13th Five-Year Plan point to an increased emphasis on innovation, improved resource allocation, manufacturing, IT, services as well as low-carbon growth.
  
• Annual GDP growth has consistently slowed since 2010 (+6.7% YoY in 2016). However, quarterly output data points to a clear stabilization of the economy in 2016 and a more broad-based recovery in Q1 2017 (+6.9% YoY). Accommodative fiscal policies suggest that China’s target growth rate of “around 6.5%” remains achievable and that economic stability will continue to occupy center stage.
  
• Chinese foreign trade contracted again in 2016 (-6.8% YoY) but recovered sharply in Q1 2017 (+15.0% YoY) amid a more benign external environment. Increasing industrial competition, geopolitical uncertainty and protectionist sentiments will challenge the sustainability of foreign trade growth.
  
• The Trans-Pacific Partnership’s prospects have deteriorated, creating a new momentum for PRC-led regional integration initiatives including the Regional Comprehensive Partnership Agreement. During the first Belt and Road Forum in Beijing in May, China pledged significant funds to promote infrastructure, trade and connectivity along the “New Silk Road”.
  
• Sino-Swiss trade has grown since the bilateral free trade agreement entered into force in July 2014, and continued to do so in 2016. That year, the total volume of goods traded with the Mainland stood at CHF 39.1 billion (+23.5% YoY). Exports from Switzerland increased by +39.0% YoY, the agricultural (+52.5% YoY) and pharmaceuticals (+35.6% YoY) sectors having particularly strong showings.
  
• In H1 2017, tighter capital controls and increasingly wary counterparties contributed to a slowdown in Chinese outbound M&A activity. Cross-border acquisitions plunged -67% during the first four months of this year, the biggest drop for a comparable period since the GFC. Tighter capital controls may have also contributed to a cooling investor sentiment towards Chinese inbound investors.
  
• The majority of Swiss companies in China continue to consider the country as a relevant investment destination. A recent survey revealed that the investment appetite of Swiss companies is still considerable: 57% of the Swiss companies surveyed plan to increase their investment in China and 48% consider China to be a top 3 investment destination.