Comparatively early this year, on 25 January 2020, the “Year of the Pig” ends and we will enter into the “Year of the Rat”. According to Chinese legend, being the first animal to reach the Heavenly Gate, the rat is the first animal in the line of twelve zodiac animals. Rats are known to be intelligent, quick-witted and versatile. In Chinese culture rats are known for being good with money and because of their reproduction rate, are associated with fertility. With the rat being the first of the zodiac animals, this means that a new Chinese zodiac cycle starts. People born in the years 1960, 1972, 1984, 1996 and 2008 are rats.
During Chinese New Year period, which lasts from 10 January until 18 February, the Chinese population is expected to embark on over three billion trips during the Spring Festival season, with over 200 million people undertaking long distance travel. People will travel back to their hometowns to spend time with friends and family and the majority of businesses will close for at least 3 days. Therefore, it is important for individuals and especially companies to plan ahead for their China operations and supply chain.
Topics to watch in 2020
The year 2020 already started and this year marks the implementation of the Corporate Social Credit System and the Foreign Investment Law. Even though the CSCS and FIL have been under development for a while, we look forward to observe the implementation as of this year.
Moreover, the US-China trade tensions are an important topic to keep watch of. The phase one trade deal has been signed, but there is still a long way to go to ease all the trade tensions between the two economic powerhouses. In addition, regulatory development cannot be completely separated from geopolitical developments and therefore we will keep a close eye on new regulations aimed at promoting foreign investment.
On top of this, China will have to deal with a slowing economy. With the thirteenth five-year plan coming to an end this year and the government target to double China’s 2010 GDP level by 2020, the country will hope to meet its ambitious goals. Including the recently upwardly revised 2018 GDP figures, the economy needs to grow at least 6.1 per cent in 2020 to achieve this goal. With the economy slowing down to 6.0% growth in the third quarter of 2019, the slowest pace since 1992, expectations are that the growth rate for 2019 will be 6.1 and in 2020 is expected to fall below the 6% threshold at 5.8%. Analysts have warned that rash measures to achieve the growth target could hurt future growth of the economy. Therefore, it will be interesting to see what the government will do to attain the goal of a “moderately prosperous society”.
Our expectations for the Year of the Rat
Whereas China has been able to push forward its economy by itself for years and seemingly unbothered by external factors, it is currently facing several external challenges as well as internal pressures. The ongoing trade tensions with the US and the concern in the rest of the world with respect to China’s growing influence on a global stage present challenges the country will have to overcome. Moreover, the slowdown of the economy causes concern in the country as well. However, China’s GDP is still expected to grow by 5.8%. To put this into perspective, the projected growth rate for the US is 2.3% and for the Euro Area it is 1.6%. Whereas, with a growth rate of 5.8%, the amount China adds to its GDP in a year is more than the entire GDP of economies such as Turkey or Switzerland.
Companies should make sure they understand the challenges and opportunities in the country. Some industries and sectors have become saturated, but the continuing growth causes for new opportunities in different industries and regions. Especially the changing consumption patterns of the middle class and the growth of said middle class in the lower tier cities give way to many opportunities for both domestic and foreign companies alike. Where the implementation of the New Foreign Investment Law should further improve the business climate for foreign companies, paving the way for foreign companies to tap into new markets within China.
From all of us at MS Advisory we wish you all a Successful Year of the Rat and look forward to support you in the next year!