This episode contains segments on the State Council’s newly released document aimed at improving the environment for foreign investment; on the decline in China’s producer and consumer price indices; on the latest development index of SMEs and on China’s slower-than-expected industrial production growth in July as well as the lowest expansion in retail sales this year. From the Chamber’s side, join the European Chamber’s event on 25th August to learn more about how German businesses in China could cope with potential challenges brought up by Germany’s first comprehensive strategy on China.
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Opinions of the State Council on Further Optimising the Foreign Investment Environment and Increasing Efforts to Attract Foreign Investment
China July price indices (in Chinese)
China July SME Development Index
China July retail sales, industrial production (in Chinese)
European Chamber event: Shifting Gears? Germany’s Updated China Strategy
XINHE: Hello and welcome to China Shortcuts,
MARIANN: the European Chamber’s weekly catchup on China’s business landscape.
XINHE: On 13th August, China’s State Council released a document containing 24 points aimed at improving the environment for foreign investment. If implemented in a timely, coordinated and consistent manner, these measures could go a long way to improving business confidence.
MARIANN: Foreign businesses see it as a positive that the State Council asked for the clarification of requirements for goods and services ‘produced in China’ in connection with government procurement, as it could prevent discretionary interpretation by local officials.
Furthermore, European companies welcome that the document calls for the implementation of preferential tax policies for foreign-invested enterprises. Foreign firms, however, require urgent clarification on whether there will be an extension of China’s policy of non-taxable allowances for foreign employees—which the European Chamber has continually advocated for—beyond the expiry date at the end of this year, as they are already planning their human resources for 2024.
The State Council also put forward that the safety mechanisms for cross-border data flows should be made more convenient. In this regard, European companies are looking for reforms to China’s overly stringent data governance regulations that can facilitate the transfer of data across borders for legitimate business purposes.
MARIANN: Prices producers charge at the factory gate fell 4.4 per cent year-on-year in July. This marked the tenth consecutive month of decline in producers’ prices in China, where a weak recovery in domestic consumption coupled with a sluggish global demand is undermining the country’s economic rebound.
The consumer price index also raised concerns over a deflation trend, as it indicated a 0.3 per cent drop from the same period last year. This was the steepest decline in consumer prices since November 2020. At the same time, the month-on-month reading showed a 0.2 per cent increase from June to July.
In its statement issued on 9th August, the National Bureau of Statistics said that the drop in the year-on-year data was largely due to a relatively high basis of comparison from last year, and pointed out that while food prices fell, service prices, especially for services linked to tourism, such as flights and accommodation, rebounded at a strong pace in July.
XINHE: According to a survey conducted by the China Association of Small and Medium Enterprises, SMEs in China fared somewhat better in July than in the previous months of the year thus far, however, their development index was still well below the 100-point critical value of prosperity.
MARIANN: The most significant increases were recorded in the real estate and social services sectors. At the other end of the spectrum were surveyed SMEs in the construction and wholesale sectors that indicated a decline in their development in July compared to the previous month.
XINHE: Industrial production in China expanded at a slower rate than expected in July, while growth in retail sales dropped to the lowest level recorded so far this year.
MARIANN: The 3.7 per cent year-on-year increase in industrial production was more moderate than the June reading as well. Retail sales data reinforced concerns over weak domestic consumption, as the 2.5 per cent growth compared to the same period last year lagged analysts’ forecasts and was the lowest since retail sales returned to growth again after three months of decline ending last December. The urban unemployment rate stood at 5.3 per cent in July. The National Bureau of Statistics announced that it would suspend the publication of the unemployment data broken down into different age groups. As the announcement came after youth unemployment broke historic records several months in a row, it sent a worrying signal about the state of the job market, and China’s economy in general.
XINHE: On 13th July, Germany released its very first comprehensive strategy on China, highlighting that, in adherence to the European Union’s stance, it views China as “a partner, competitor, and systemic rival”.
MARIANN: Also in line with the EU’s approach, the strategy emphasises that Germany is not seeking to decouple from the Chinese economy. However, it calls on German companies to take geopolitical risks sufficiently into account and underlines the importance Germany places on diversifying its economic ties, and on actively expanding business relations around the world with actors that share its values and interests.
XINHE: Join us online or in person in Beijing on 25th August to learn more about the potential challenges German companies are likely to encounter as a result, and about the strategic recalibration necessary to cope with these challenges while pursuing new opportunities and continued growth in the Chinese market.
MARIANN: Thanks for listening. Tune in again next week.
XINHE: In the meantime, please find useful links in the episode notes.