China business cautiously optimistic

Those surveyed believe the main challenge for China’s economy is rising global economic uncertainty.

A new CPA Australia survey finds businesses in China cautiously optimistic in 2019 amid global uncertainties.

CPA Australia’s latest survey of members in China shows that they are cautiously optimistic on the prospects for China’s economy and businesses in 2019, despite facing a number of global and domestic challenges.

The survey, conducted over December 2018 and early January 2019, asked 220 CPA Australia members residing in China about China’s economy and their business. It found that more than three in five expect China’s economy to grow 6 per cent or more in 2019, with tax reform and innovation policies considered factors that will most positively impact the economy.

More than half said they expect their employer will increase profit in 2019, with only 16 per cent expecting profits to decline. Reflecting this positive business sentiment, nearly half of the respondents expect their employer to increase headcount in 2019, with 31 per cent expecting the number of employees to grow by 5 per cent or more.

Innovation drives growth

Further reflecting this positive sentiment, large numbers of respondents expect their employer to innovate in the coming 12 months. More than three-quarters expect their employer will or may introduce a totally new product or service to China or the world in 2019, up from 64 per cent in 2017. Nearly 60 per cent expect their company will increase investment in new technology.

Paul Drum FCPA, CPA Australia general manager external affairs, says, “The strong focus of Chinese businesses on innovation and technology is no doubt driven by a combination of reasonably strong business and economic sentiment, and government policies encouraging investment into innovation and technology, such as policies to encourage the development of artificial intelligence, robotics and new energy vehicles.”

China’s challenges

Those surveyed believe the main challenge for China’s economy is rising global economic uncertainty, with more than two-thirds selecting this as the main challenge. Other major challenges selected were uncertainties in the stock market and the property market, and slowing domestic growth.

“Given global trade tensions, doubt over Brexit and rising US interest rates, it is no surprise that respondents were most likely to select global economic uncertainty as China’s main economic challenge in 2019,” says Drum.

“However, it is important to not overstate this challenge. The survey results show that China’s economy and businesses are still growing, many are looking to increase employee numbers, and the typical business in China remains focused on long-term drivers of growth: innovation and technology, expanding into new markets, and investing in upskilling staff.”

The survey shows that opportunities exist in the IT/technology and consumer products sectors, with respondents expecting those industries to make the greatest contribution to China’s economic growth over the next three years.

China’s global outlook

It appears that many businesses in China look upon the current global challenges as short-term issues. While many are expected to have a strategic focus on cost management in 2019, they are also highly likely to maintain their focus on the medium to long term with their high levels of investment in innovation and technology, staff development and increasing staff numbers.

“We typically find that businesses react to longer-term challenges by paring back their investment in innovation and technology and staff development and instead looking to not add or cut staff numbers,” says Drum.

“Our survey data puts into perspective recent media reports that China’s economy is slowing. The economy is still growing at 6.6 per cent and is likely to grow at over 6 per cent in 2019. Yes, the rate of growth is down but China is now growing off a much larger base, so a 6 per cent growth rate might equate to 10 per cent growth or more only a few years ago.”

Drum notes that business sentiment remains positive despite the challenges, which is reflected in expectations to increase employee numbers, invest in innovation and technology, and invest in staff development – all hallmarks of a robust business sector.

“This does not mean they are not keeping a weather eye on the current global challenges, with many respondents also saying that their business’s key strategic focus of 2019 will be on cost management.

“For businesses outside China, one key message from these results is that opportunities still exist in China. However, what those opportunities may be is changing as the economy moves towards a more advanced, consumption-led economy.”

Read next: CPA survey finds businesses in China cautiously optimistic in 2019 amid global uncertainties

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