Panel
China's Trade-Off: The Outlook on Investment
- China is projected to maintain a well-growth path over the next couple of decades, driven by expanded educational opportunities and supportive government policies, with a specific focus on higher-value engineering, professional services, and financial industries as top talent shifts toward economics and finance.
- The financial market is expected to experience rapid development and gradual opening, with the CSRC anticipated to clear the IPO backlog within the next year to year and a half, while ownership caps for foreign institutions in joint ventures are expected to be removed to improve governance and attract capital.
- A significant inflection point for state-owned enterprise (SOE) reform is expected at the Party Congress on October 18th, leading to restructuring, spinoffs of non-core businesses, and the restructuring of undervalued assets, though recent five-year trends have shown limited movement compared to earlier expectations.
- The near-term private sector is expected to undergo changes in control as founders transfer businesses to younger generations, potentially resulting in more controlled deals in the private equity space due to succession issues.
- Macro and micro environments are projected to align favorably in 2017, with foreign exchange reserves stabilizing and climbing since February 2017, supported by a government expected to welcome foreign capital by reducing negative investment lists, easing profit repatriation, and extending tax deferrals.
- A specific risk exists that if capital outflows accelerate within six to nine months, measures to welcome foreign capital may arrive too late to mitigate potential instability.
- Real estate markets are expected to boom if the government relaxes monetary policy and home purchase restrictions during economic downturns, with price increases likely starting in tier-one cities before spreading to lower tiers, though growth may slow if prices rise too rapidly.
- E-commerce demand is expected to continue driving logistics warehouse development, with PAG planning to build two million additional square meters of space next year or early next year following an initial one million square meters.
- Outbound Chinese investment, which reached $200 billion in 2016, is expected to remain robust despite government discouragement, though volumes have already declined 44% year-to-date from 2016 levels, with deals exceeding $10 billion facing increased scrutiny.
- Cross-border M&A activity is expected to remain significant in non-Asia destinations, particularly Europe, with further volume pickup anticipated if regulations and geopolitical tensions ease, although capital outflows are increasingly being equated to national security risks.
- Demographic and economic projections indicate China will become the world's largest consumer class by 2020, home to a quarter of global top companies, and a very advanced society within 20 years.
- Significant risks identified include potential economic and trade conflicts with the United States and the possibility of instability arising from North Korean tensions causing substantial economic damage.