Corporate investors in China have experienced enormous changes over the past twelve months. The combination of slower economic growth, rapid regulatory changes and unpredictable investment markets has created an environment of uncertainty and volatility making it difficult to determine which of the myriad perceived risks are genuine and in turn, how these can best be managed. To help, this article outlines the five key risks that corporate treasurers should consider when operating and investing cash in China.
While China’s economic growth rate remains strong and continues to outpace most other economies, the recent slowdown from the rapid pace of growth seen in the last three decades has inevitably caused concern for investors – especially given China’s economic importance. The size and magnitude of the slowdown and potential impact on domestic demand and corporate investment plans remain key questions. However, a slowdown was inevitable and is consistent with China’s increasing economic maturity. Furthermore, slower, more sustainable economic growth should lead to greater resilience and transparency and as such, economic risks should not be overstated.
The government and People’s Bank of China (PBoC) are actively focused on achieving a ‘soft landing’, using a combination of fiscal policy and easier monetary policy to stabilise the slowdown in growth. The government is also continuing its programme of regulatory reform at a rapid rate in order to create a more stable foundation for future economic growth and development.
There are other positive factors too. For example, China’s services sector continues to grow strongly, representing approximately 55% of China’s GDP and recently replacing the manufacturing and export sectors as the largest driver of economic growth. Both Chinese corporations and foreign multinationals operating in the services sector are experiencing strong growth opportunities.