Announced today by the Chinese Government was a further clamp down on Chinese nationals withdrawing money from China. Today’s specific action was an explicit statement that the purchase of insurance policies to assist with raising Sterling, Dollar or Euro would now no longer be allowed.
National Congress sets the theme
The announcement was made today as the first full business day of the Chinese New Year. However, this was not a surprise as the Central Government has been exerting firmer controls in a number of areas in the months leading to the National Congress in Autumn 2017. This twice-decade meeting is where the makeup of the top leadership of the Community Party is decided and where President Xi was appointed in 2012.
From permitted websites, closure of VPN access, accelerated anti-corruption investigations and new financial controls, political leaders are jostling to demonstrate they can implement the Communist Party and by default, President Xi’s wishes.
Mixed messages - Made in China 2025?
Chinese provinces have been highly active in attracting international specialists to help fulfil the ambition of having high quality products with the title “Made in China” attached to them. The issues many UK firms face when looking at China is whether IP laws are sufficiently robust, that there is application of corporate taxes and ultimately whether they can repatriate profits back to the UK. In fact, we are working with a number of such initiatives including Hebei, Wuhan, Tianjin and Guiyang where positive messages of support are being offered.
Similarly, the One Belt One Road (OBOR) and Asia Infrastructure Investment Bank (AIIB) promote external investment but if foreign currency is not available to investors without direct controlling authority from the Government, how do these policies blend?
What is the future?
China is the world’s second Super Power with an economy to match. As it grows into its new skin, there will be trials, pilots and even failed attempts to control and guide growth. If we were to predict the future, then we would suggest the following scenarios:
- Relaxation of controls: after the National Congress, we believe there will be a re-assessment of actions taken at the end of the Year of the Monkey (2016) and through the Year of the Rooster (2017). Do not expect things to go back to where they were 6-12-24 months ago, but the policies will support balanced growth.
- Chosen industries: Life Science & Healthcare, Advanced Tech and Education will remain the most favoured industries for external investment. Caring for the growing elderly population, cleaning the air and water, and educating the population are central to creating the “moderately prosperous society” or 小康社会 that President Xi proposed in 2015 and as such will continue to benefit from Government support.
- Rmb appreciation: taking its place on the world stage and avoiding conflict with President Trump regarding perceived currency manipulation, we see the Rmb appreciating 5-10% over the next 10 months.
So, do not lose faith but also do not lose focus. Things change fast in China but the trend remains upwards.