The most influential Megatrends set to shape the world through 2030, identified by Euromonitor International, help businesses better anticipate market developments and lead change for their industries.Learn More
Euromonitor International’s China Economy, Finance and Trade Country Briefing, focuses on the world’s largest economy (in purchasing power parity terms) which is currently facing major internal as well as external risks. Despite continued economic deceleration, China has been successful in rebalancing toward services and consumption led economic growth. Nonetheless, the country continues to face downside risks arising from a continued depreciation of the yuan. This could heighten capital outflows and hamper its stock market, which was one of the worst performing globally in 2016. Additionally, risks stemming from potential shifts to trade and investment policies in the USA could further hamper China’s growth prospects; thereby triggering a potential China hard landing.
Owing to the sluggish economic growth and a strengthening US dollar, the yuan depreciated against the US dollar by 6.7% (year-on-year) in 2016, its biggest collapse since 1994. This has caused foreign investors to remain jittery and start withdrawing their investments from the Chinese economy, seeking better profit elsewhere. Furthermore, continued interest rate hikes in the USA will make dollar investments more profitable, triggering higher amounts of capital outflows from China, causing the country’s foreign exchange reserve to further deteriorate. In order to control the foreseen avalanche of capital outflows, the government levied new capital controls on overseas investment in December 2016. Although this has partially helped calm a faltering yuan, the restrictions imposed over yuan flows will hurt China’s goals of expanding its global influence and intensifying the yuan’s trade internationally. Furthermore, the Federal Reserve is likely to increase interest rates at a faster pace in 2017. This coupled with Trump’s plans of imposing tariffs of 45.0% on Chinese imports could stir up a trade war, causing the yuan to plummet further; thereby worsening the situation.