China's Emerging Cities, Outbound Investment and Macroeconomic Development

The Economist Intelligence Unit (EIU), the research arm of The Economist Group for business executives, produced a webinar on Feb. 25, 2016 titled "Emerging cities, outbound investment and macroeconomic development in China," which provided an overview of recent developments in China, regional opportunities and risks, overseas investment, and an overview of the EIU's Access China service. While I recommend watching the one-hour webinar in its entirety (including downloading the PowerPoint presentation), there are a few points worth discussing in this post.

"Emerging cities, outbound
investment and macroeconomic
development in China" -- slide 5

The webinar started with explaining significant regional discrepancies in growth performance exist. For example, as represented in slide 5, the provinces of Heilongjiang, Liaoning, and Jilin in China's northeast, along with the province of Shanxi, experienced an economic growth change of less than six percent in 2015. The northeast provinces contain a large number of state-owned enterprises (SOEs), primarily in heavy industries, which are feeling an adverse impact of China's transition from an export-driven to a consumer-driven economy, as well as weaker external demand for heavy industry products by Northeast Asian countries. Another factor hurting the economy of China's northeast provinces is high unemployment and minimal wage growth continues to drag on local consumption.

Conversely, central China's Chongqing, Guizhou, and western China's Tibet experienced economic growth of more than 10 percent last year. Manufacturing output growth is resilient in central China, which can attribute some of its growth on the relocation of industrial enterprises from China's coastal regions and a stronger presence of private sector manufacturers generally. This growth is lifting levels of productivity and has experienced an improved easiness of doing business. The webinar also noted growth held up better in consumption, private-sector oriented provinces located primarily in China's coastal region despite the departure of some industrial enterprises to the central region.

"Emerging cities, outbound
investment and macroeconomic
development in China" -- slide 17

Another point the webinar covered was outward direct investment (ODI) from China is catching up with foreign direct investment (FDI) as illustrated in slide 17. While China's ODI flows reached over US$160 billion in 2015, China's share of global ODI stock was only 2.3 percent. Chinese ODI interest is becoming more diverse with targets in the services and agriculture sectors.

Moreover, according to slide 21, China's investment flows vary on a sectoral basis. For example, the top three sectors for FDI are manufacturing, real estate, and leasing and commercial services. Whereas, leasing and commercial services, wholesale and retail trade, and mining are the top three sectors for China's ODI. Emerging ODI focus include financial services and real estate.

"Emerging cities, outbound
investment and macroeconomic
development in China" -- slide 21

Lastly, for those whom are interested in doing business in China, I recommend utilizing EIU's Access China service, which is described as a "unique service designed to help your business succeed in China. It is the only single source of data, analysis and forecasts for every province, prefecture and 287 of China's largest cities."

For those of you currently doing businesses in the world's second largest economy, what market intelligence services do you recommend?

Aaron Rose serves as President and CEO of ROI3, Inc., a Seattle, Wash.-based company that empowers people in emerging economies through innovative, technology-based solutions. He is also the editor of Solutions for a Sustainable World.