China update

14 September 2020

Economy news

Economic growth: The industrial sector continued to drive China’s economic growth throughout July, with industrial profits up for the third straight month, driven by infrastructure and property investment.  Data from China’s National Bureau of Statistics shows industrial profits rising 19.6% year-on-year in July, up from an 11.5% increase in June. Lower unit production costs – including reductions in taxes, fees, rents and utilities – helped boost profits.  

Commercial profits: Overall, industrial profits through the first seven months of the year were down 8.1% year-on-year given the significant contraction in industrial activity from January to April. State-owned enterprises (SOEs) took the largest profit hit through the first seven months of the year, with profits down 30.4% while the private sector saw a 5.3% decrease in profits. That’s not surprising given SOEs were asked by Beijing to bear substantial burdens in terms of rent reductions and support for employment during the crisis.

Increased credit: Strong industrial activity has been facilitated by improved access to credit. New data from financial regulators showed record levels of loans from China’s banks to the manufacturing sector through 2020. According to the China Banking and Insurance Regulatory Commission, over the first seven months of the year, China’s financial institutions issued RMB 1.6 trillion in new manufacturing loans – more than double the RMB 780 billion lent to the manufacturing sector for all of 2019. Regulators have this year used cheaper credit to help prevent widespread bankruptcies, to prop up employment and to decrease reliance on foreign suppliers of high-tech products.

Service-sector recovery: Non-official PMI readings for August by financial publication Caixin suggests an ongoing service-sector recovery. The non-official readings were broadly consistent with the official PMI figures. The Caixin services measure of economic sentiment remained positive and broadly in line with a month earlier. The services index has now been in expansionary territory for four consecutive months. Caixin’s survey found employment in services industries growing in August for the first time since January. The manufacturing PMI increased to 53.1 from 52.8 in July as governments continued to throw support behind the manufacturing sector to lead economic recovery.

Energy & resources

Iron ore: Customs data shows that demand for iron ore remained strong in August. Imports exceeded 100 million tonnes for the third consecutive month, with a slight easing from a record 113 million tonnes in July. August imports were up 5.8% y-o-y by volume, but down 5.6% y-o-y by value at US$10 billion. China’s iron ore imports for January–August totalled 760 million tonnes, up 7.5% y-o-y by value at USD70.6 billion. 

Coal: China’s import restrictions continue to constrain coal imports from all countries, and supress prices. Strict implementation of import quotas saw China’s coal imports in August drop to just 21 million tonnes – down 35% y-o-y by volume and 47% by value at US$1.4 billion. China’s total coal imports for January–August are now down to 2019 levels of around 221 million tonnes. They are also down 11% by value y-o-y, arguably finding equilibrium after record imports in the first half of 2020. 

Natural gas: China’s natural gas import volumes continue to grow but prices remain low. China imported 9.4 million tonnes of natural gas in August, up 12.4% y-o-y by volume, but down 26.5% by value at US$2.5 billion. Natural gas imports for January–August totalled 65 million tonnes, up 3.3% y-o-y by volume, but down 17.8% by value at US%22.7 billion.

Shipping: Port congestion eased a little from late August but is still cited as a problem by companies. Chinese commodity analyst Mysteel reported that 169 iron ore vessels were awaiting clearance at Chinese ports as of September 3. Chinese authorities continue to warn about iron ore price volatility to discourage market speculation. Companies seem to be managing the impact of import licence delays for iron ore shipments, which look to be less severe than first reported.   

Food & Agri

Seafood: Current demand for premium seafood remains soft as many high-end hotels and restaurants are operating at lower occupancy rates. Some jurisdictions are still restricting numbers at gatherings. In Zhejiang Province weddings are limited to 50 people. Typically, weddingsattract 300–500 guests. 

Abalone: Mainland China and Hong Kong remain strong markets for Australian abalone. In 2019 Australia exported over A$143million abalone products including live, chilled or frozen to world markets. Mainland China accounts for 56% of the total with Hong Kong taking 20%. At the end of July 2020, China had imported 305 metric tonnes of live abalone from Australia, a 33% decline from the same period in 2019.  

Waste food: China has embarked on a publicity campaign to cut down on food waste, after President Xi called the amount wasted "shocking and distressing”. A report by the China National Bureau of Statistics (NBS) estimated that the total amount of food wasted at the point of consumption is 50 billion kilograms per year, which could feed 350 million people. Local government and restaurant associations have initiated ‘Clean Plate Campaigns’around the country to curb food waste and attempt to rein in the excesses of China’s extravagant dining culture. 

Media campaigns: The state broadcaster CCTV has criticised the so called ‘Big Stomach’ internet stars and influencers – those personalities filmed eating absurd amounts of food during live streaming performances. China’s social media platforms have also discouraged users from posting videos that show bad eating behaviours and will delete content or ban users violating the rules. 

Health & Supplements

Wellness goods: Nutritional supplements and health food products have been among the best performing consumer goods through the COVID-19 outbreak as consumers look to improve their overall health and well-being. According to the China Chamber of Commerce for Import and Export of Medicines and Health Foods (CCCMHPIE), imports of vitamins and supplements were up 32.1% year-on-year for the first half of the year, reaching A$2.81 billion. 

Australian exports: Australia was China's second largest supplier of nutritional supplements during the pandemic period with imports of A$600 billion, up 22%. This means Australia lags only the United States, which supplied A$644 million of supplements. Austrade is currently coordinating two online sales events for Australian complementary medicines clients in October and November. 

Medtech & oncology: China is seeking to upgrade capabilities in oncology diagnosis and treatment. Austrade and the China Hospital Construction Conference convened a second online webinar event on September 11 to focus on oncology opportunities.

Financial Services

Mutual funds: BlackRock Financial Management has become the first global asset management company approved by the China Securities Regulatory Commission to set up a wholly-foreign-owned mutual fund management entity in China. The new company is based in Shanghai with registered capital of RMB 300 million (US$43.7 million) and will undertake funds management and handle private assets. 

Opportunities: With the financial and capital markets now allowing foreign firms to establish Wholly Foreign-Owned Enterprises (WFOEs) as well as joint ventures (JV) in China, there are opportunities for both Australian institutional investors and Australian fund managers to export services to co-develop and design products for Chinese investors and institutional funds. China’s mutual fund sector is estimated to be worth RMB 17.7 trillion (US$2.58 trillion) 

Technology

Gaming: According to the 2020 Cloud Game Industry Survey Report released during ChinaJoy 2020, China’s cloud gaming market is expected to exceed RMB 1 billion (approximately AUD$250 million) in the next two years with an estimated annual growth rate to exceed 100%. Although 5G networks, software and hardware support for cloud game solutions, cloud game content creation and cloud game platform services are only just beginning. It is expected that the next 3–5 years will see significant growth. 

Technology: China is mapping out further measures to support the domestic development of strategic technologies. The Ministry of Commerce (MoFCom) released a revised export control catalogue (the first since 2008), adding 23 new technologies to the list of prohibited exports. Meanwhile, Bloomberg reported Beijing was preparing a sweeping new set of government policies to foster the semiconductor industry, to be announced in early 2021 as part of the 14th five-year plan. China will import an astonishing US$300 billion worth of semiconductors this year. 

Retail

Confectionary: China’s Valentine’s Day or ‘Qixi’ (Double Seven Festival) was celebrated this year on 25 August. Pandaily reported that sales of chocolates and candies through JD.com during Qixi increased by about 30% year-on-year, and sales of gift boxes increased by nearly 300% year-on-year. 

Luxury: JD data indicates that ahead of Qixi, home goods, outdoor and luxury products (among other categories) sales increased by 20–30%. Jewellery and handbags were among the most popular imported products. 

Aviation

Beijing: Beijing Airport resumed its international flights from 3 September, initially with eight countries: Thailand, Cambodia, Pakistan, Greece, Denmark, Austria, Sweden and Canada. Total international daily arrivals were capped at 500.

Regional: Wuhan’s Tianhe International Airport is expected to resume international routes in mid-September 2020, while Guangzhou’s Baiyun International Airport recorded 4.1 million passengers and 33,773 flights for July 2020. This makes Guangzhou the busiest passenger airport in China since July.

Property

Real estate: China’s real estate sales grew substantially in August, reflecting increased property investment in recent months.According to the China Real Estate Information Corp, sales by China’s 100 leading property developers rose 30.7% year-on-year to RMB 976.2 billion (AUD$195 billion) in August, accelerating from 25.7% growth in July and marking a fifth consecutive month of growth after the sector took a major hit in the first quarter.  

Urbanisation & debt: Depending on the criteria used, real estate and property are estimated to contribute around 14% to GDP (some estimates say it’s up to 30% of GDP). This has increased from 10% five years ago as urbanisation rates have continued to rise. Property investment has also contributed to increased debt levels in recent years, forcing authorities to implement measures aimed at limiting speculative real estate investment.

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