Made in China to power 2018 growth

Made in China to power 2018 growth

Mon, 12/02/2018 - 14:59
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drone

HIGH TECH: Drones were one segment of consumer electronics to exhibit solid growth in 2017. Photo: Aaron Burden

A recovery in China’s increasingly high-tech manufacturing sector has been tipped to bolster economic growth through 2018, after a near seven-year slowdown was halted last year.

Research by HSBC Economics showed China’s economy was surprisingly resilient in 2017, with data released late last year indicating growth of 6.8 per cent through the first three quarters of the year.

A major contributor to Chinese growth was the manufacturing sector, which HSBC said bottomed out in mid-2016 before rebounding last year.

Investment in Chinese manufacturing rose by 4 per cent in 2017, with HSBC describing the sector as one of the country’s most productive and competitive, as well as an effective anchor for growth.

HSBC said the improving state of manufacturing in China was driven by widespread industrial upgrades, as the ‘Made in China’ label transitions from having negative, cheaply made connotations to representing high technology.

Manufacturing sectors that exhibited significant growth in 2017 included specialised equipment, automobiles, rail, ship, aircraft, spacecraft and other transport, electrical machinery, computers and consumer electronics.

Combined, so-called ‘new sectors’ in China grew by 8.4 per cent in the 12 months to the end of October, in sharp contrast to declines in ‘old sector’ manufacturing – food processing, food manufacturing, textiles, chemical materials and products, medical and pharmaceuticals, plastics, minerals and ferrous metals.

HSBC said a key factor in the progression towards higher value-add products was private sector investment.

“We think China’s manufacturing sector is on the cusp of a three- to five-year recovery, led by its private sector businesses and ‘upgrading’ related investment,” HSBC said.

“There are two pillars that support this process, the domestic and the external.

“Domestic themes, such as the shift to automation and smart manufacturing, the digitisation of services, middle-class consumption, combined with China’s move towards higher value-add manufacturing, is one factor that will power the manufacturing recovery.”

Overall, China’s economy contributed around a third of global growth in 2017, according to new research released by the United Nations.

The UN’s World Economic Situation and Prospects 2018, released last month, showed China’s GDP growth was expected to come in around 6.8 per cent for 2017.

State news website China.org.cn also pointed to the higher-end manufacturing base in China as its key driver of economic growth.

In the first half of last year, total drone exports rose by 93.4 per cent, while automobile exports from China were up 32.5 per cent over the same period.

China’s Belt and Road Initiative is expected to be a boon to global growth throughout 2018, following the announcement of a ¥100 billion ($19.6 billion) investment in the Silk Road Fund last year.

China also invested more than $US12 billion ($15.3 billion) in countries along the Belt and Road route in 2017.

“There has been continued pessimistic talk regarding China's economic development,” China.org.cn said.

“There are also worries and fears that disasters will possibly be inflicted on the world economy by such a large entity as China once it gets into a period of high risk.

“However, China's performance has never let the world down. The Central Economic Work Conference recently held in Beijing stressed high-quality development, sending a clear message that China continues to be a main driver powering world economic growth and plays a stabilising role in world economic development.

“The dividends of China's economic development will continue to be shared by the world.”

A report by international research and consulting agency McKinsey & Co indicated Chinese outbound investment is poised for further recovery in 2018, after 2017 was marked by changes in capital outflow regulations.

McKinsey & Co said global Chinese investment in artificial intelligence, the internet of things and a wide range of financial, medical and education startups was ready to take off in 2019.

However, political pushback in the United States could lead Chinese investors to target Israel, Scandinavia and the United Kingdom, the report said.

“Many Chinese investors will simply assume that they could not get approval for investment in the United States, and so won’t try,” McKinsey & Co said.

“If US-China economic relations deteriorate significantly, we even might see real pressure to break up deals consummated in years past.”