We are fast approaching the Chinese New Year 2019 – from February 5th we will be in the Year of the Pig, but what can we expect from the New Year in China?
One thing is certain, fewer people will be shopping, both in-store and online. It’s the most important festival of the year in China so people will be taking time off work to celebrate with their friends and family. This is going to immediately lead to reduced demand for those working in customer service, although in some business areas there will still be a significant number of interactions.
But what are the wider potential economic changes we may see in 2019? Compared to the rest of the world, the projected 2019 economic growth in China of 6.2% is strong, however for China that’s the weakest projected growth for 28 years. The World Bank has not revised their projections for almost a year so they believe that a slowdown is in progress. The Chinese government has now pledged to undergo a series a tax cuts to further stimulate consumer demand – most countries would love to see growth of over 6%, but in China this is seen as not fast enough.
As McKinsey documents, there are concerns around the US-China relationship and what the current disagreements mean for world trade. The short-term effect of a trade war and increased tariffs will be minimal in China – certainly the GDP would not be affected in the short-term, but if the ongoing tariffs lead to a loss of consumer confidence then there could be a medium term impact.
A big danger to the US is that a trade war will lead Chinese companies to invest all their Foreign Direct capital elsewhere, leading to a boom for countries such as the UK, Japan, and Israel. But the trade war with the US is not leading to a slowdown in exports from China. Last October exports jumped by over 13%, so Chinese companies are continuing to grow exports even in an uncertain marketplace.
In a draft law on foreign investment released in the final week of 2018, Beijing proposed greater intellectual property protection for overseas firms operating in China and to refrain from interfering in the operation of foreign businesses. The law could help address long-standing US concerns that China is stealing American companies’ Intellectual Property. The draft law will remain open for public comment until mid-February, allowing scope for adjustments after face-to-face talks between the two sides in Beijing.
Chinese companies are also facing increasing market-access challenges in the United States, especially in B2B markets. The US federal government banned Huawei Technologies and ZTE from much of the telecom-infrastructure market and they have been discouraging their core vendors from buying from Chinese companies. Also, pharmaceutical companies saw further changes to drug-approval policies with more than 100 foreign-developed drugs approved for the China market in 2018.
Retailers in China reported a strong year, especially for those that have created effective omnichannel integration. Fast-moving consumer goods (FMCG) grew by 6.3 percent in Q3 from a year ago, and even supermarkets have grown by 5.0 percent. Across fresh foods, alcoholic beverages, cosmetics, and more, ten times as many consumers report trading up to higher-priced goods than down. The average price of a mobile phone sold in China has increased 65 percent over the past five years.
In general, across all sectors, a more interventionist government is feeling confident in its ability to shape and control more and more specific details of a business, leading it to intervene through policy, regulation, and arbitrary one-off actions. There is a mixed message, with slower than expected growth, but a confident government that is making interventions where needed and leaving industry alone in other areas. The potential issues with the US are not affecting the Chinese economy yet so I’m quietly confident that we will continue to see a good year for business in China in 2019.