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FEATURE STORY: China Business Forecast 2016
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China Business Forecast 2016

A Look at the Winners, Losers and 'Great Unknowns' in the Next Financial Year

By Tracy Hall

BT 201601 040 08 Feature story 001Admittedly last year was pretty rough on a lot of businesses in China. However, all things considered, now is most definitely not the time to turn overly pessimistic on the Middle Kingdom's future prospects. In fact in some sectors this could turn out to be a very prosperous year indeed.

Given the outstanding performance of the countries retail sector last year, it seems like a logical starting point when it comes to discussing the outlook for the coming year. Amidst a broad macroeconomic slowdown in the latter part of 2015 we saw a significant surge in sales across the board. From January to November there was a 34% jump in retail sales. Going forward this booming sector shows no serious signs of slowing down as the central authorities press ahead with the transition towards a more domestic consumption-orientated economy. If consumer demand continues soar at roughly the same pace as it has in recent months then China will be well on track to become the world's largest retail consumer market by 2018.

There absolutely is no denying that in 2016 the online retail space is the place for both old and young consumer businesses to be. According to a new retail forecast by Forrester Research INC, E-commerce sales in China this year are set to grow by a whopping 20.41%, bringing the total amount of sales volume up to about USD 356.1 billion. The further you delve into the fundamentals that are driving this growth the more incredible they look. Allison Enright, an editor at Internetretailer.com, points out that "With a population of more than 1.3 billion, China is by far the leading e-commerce market in Asia-Pacific in terms of sales. Yet only 40% of online Chinese consumers shop on the web today, less than in more mature e-commerce markets such as Japan, where 69% of online consumers buy online, and Australia, where 58% do so. Forrester projects that 58% of online Chinese consumers will be shopping online in 2016".

BT 201601 040 05 Feature story Highlight
One suspects that as a result of the broader economic transformation certain segments of the hospitality industry will also do reasonably well this year. Companies with exposure to the booming Chinese travel market are especially well placed right now. During his landmark state visit the United States, President Xi Jinping announced his and his colleagues' plans to make 2016 "The China-U.S. tourism year". The move was part of a broader push to boost both domestic and foreign tourism within China over the coming years. According to iResearch, China's online travel gross merchandise value is set to grow form USD55 billion in 2015 to USD65 billion this year. The organisation suggests that most of this growth will come from the demand of the nation's travel hungry burgeoning middle class. It is predicted that both their disposable income and their willingness to splash out on flights, hotels and package deals will continue to increase through 2016.

BT 201601 040 07 Feature story 002It is going to be an intriguing year from an investor's perspective. Although another surge in stock and real estate prices look quite unlikely at the moment, savvy investors could still do pretty well over the course of the year. On the whole financial commentators and fund managers appear to be cautiously optimistic about the upcoming financial year. Of course nobody expects to see double digit GDP figures, so therefore companies operating within the industries that have traditionally driven growth are not expected to outperform, but there are still ample opportunities in to be found in the country's service sector. Michael Hasenstab, manager of the USD 58 billion Templeton Global Bond fund, explains that "China's economy is rebalancing, some of the traditional engines of growth, in manufacturing, real estate and local government spending, have stalled or contracted. Parts of China's industrial sector suffer from severe overcapacity and are also contracting. However, those sectors are only part of China's economy-the old economy. The service sector has been expanding rapidly, fuelling wage growth and supporting consumption".

Investors will certainly be interested in some of the Chinese IPOs that are lurking on the horizon. One of the biggest names said to be considering a float on the stock market is renowned hotpot giant Hai Di Lao. While the firm's expansion into the U.S. market didn't get off to a great start it still looks like a big winner on the domestic scene. Another potentially tasty target for investors is Chinese big data services provider Jusfoun. If the firm does decide to go public then this one of a kind market leader could be well worth a punt.

It has to be conceded that the outlook for both importers and exporters in 2016 is still tricky to evaluate at the moment. On the one hand there are good reasons to believe that the manufacturing sector is finally stabilising after wave of policy measures over the last few months seem to be taking hold. Even if external demand remains weak, a weaker yuan and things like the recent tax cuts on exporters could help to cushion the sector. Likewise there is will still be strong demand for certain imported goods, particular those which cater to the luxury consumer market. Then again there is no denying that the global economy is entering into a potentially turbulent year. With everything from geopolitical tensions to monetary policy in the major economies still up in the air it seems quite likely that there will be some sizable bumps in the road over the course of the year.

BT 201601 040 06 Feature story 003Both the inbound and outbound FDI (Foreign Direct Investment) situation is also difficult to predict for similar such reasons. The consensus amongst financial commentators is that outbound investment will continue to grow at a double digit it has been over the last decade. Some of this overseas investment will be going towards major infrastructural projects in other parts of Asia and elsewhere, while some of it will be a natural outflow of capital towards the developed markets as a result of looser yuan related regulations and higher interest rates elsewhere. Whilst this is will be positive for the global economy and some Chinese investors, there may well be some consequences for domestic businesses if more capital than expected makes its way across the border.

As was very much the case last year, the onus is on China's policy makers to provide clearheaded leadership and take bold actions in order to stabilise the economy and continue to encourage sustainable growth. Right now it looks like interest rates are going to stay lower than they were for most of 2015, while more business loans, tax cuts and a multitude of other potential growth facilitators are all very much on the table. The main job of the Chinese authorities though will be to press ahead with structural reforms that will hopefully deal with lingering efficiency inhibiters like corruptions, zombie companies, and shadow banking. If the powers that be, working alongside the private sector and the central bank, can deliver on these pledges then there will be even more reasons to be optimistic about the Chinese business environment in 2016.


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