Chinese Economy Quarterly Figures: Sustainable Turnaround or Snapshot?

Beijing/Guangzhou/Shanghai, April 28th, 2019 – The Chinese economy grew by 6.4 percent in the first quarter of 2019, mainly due to strong results in March. However, weak domestic demand and overall moderate business prospects impact the business sentiment of German companies in China. These are the conclusions of a flash survey among the member companies of the German Chamber of Commerce in China, as well as the organization's regular quarterly reports.

 Flash Survey reveals effects on German business in China

  • Moderate business prospects for German companies in China, despite growth of Chinese economy in the first quarter
  • Weak domestic demand in the Chinese market as biggest risk for German companies, but March indicators show a tentative optimistic outlook
  • Around two-thirds of surveyed companies will either not plan adjustments in turnover, profit, investment and employment or even intend to increase their forecasts


Mixed Signals: March Indicators Show Cautious Optimism for the Future
The measures taken since the end of 2018 to stimulate the Chinese economy have apparently not yet fully materialized. China's foreign trade contracted in the first quarter, based on a subdued domestic sentiment, weighing heavily on imports. Nevertheless, leading indicators like finance, producer price level and the purchasing manager index in March did send tentative signals that China’s economy may have bottomed out: The Chinese economy managed to grow by 6.4 percent in the first quarter. The stronger performance came from sharp upticks in industrial production and retail sales in March, which were driven by booming construction activities. The International Monetary Fund (IMF) recently upgraded China’s growth forecasts from 6.2 percent to 6.3 percent. “We see positive signals in the Chinese economy, but a cautious sentiment from German companies in China regarding the rest of the year. It remains to be seen whether this development will continue throughout the year and provide German companies with the security they urgently seek,” assesses Jens Hildebrandt, Executive Director of the German Chamber of Commerce in Beijing, on the current sentiment of German business in China. However, the weak global economy and subdued domestic consumption will continue to weigh on China's economy.


Domestic Demand: Growth Engine and Biggest Risk in China Business
China’s economic structure continues to change, and the tertiary sector is growing faster than the primary and secondary ones. However, the overall rise in investment activity - a stimulus measure by the Chinese government, is crowding out the share of consumption in China’s gross domestic product (GDP) growth. Despite a slight rebound in March, retail sales continued to slow and are now at a growth rate of 8.3 percent. Sales in automotive fell sharply in 2018 for the first time since the 1990s and further decelerated, hitting around minus 11 percent in the first quarter of 2019. Domestic demand, a key growth driver, is regarded by more than one in two German companies as the biggest risk in their China business. This was the result of a recent flash survey conducted by the German Chamber of Commerce among its member companies throughout China across all industries. For the German automotive industry, China is the most important single market and domestic demand is the biggest risk for almost 80 percent of respondents. To counteract this, Chinese authorities are planning to stimulate auto consumption. For example, central authorities are seeking to remove certain restrictions on license plate allocation in large Chinese cities in order to boost car sales. However, a measure the industry calls for, halving vehicle purchase taxes, has not been implemented.


Despite a Perceived Slowdown: Quarterly Results Barely Lead to Adjustments
The subdued sentiment among German companies in China indicated by the German Chamber of Commerce’s Business Confidence Survey, conducted at the end of 2018, is also apparent in the first quarter of 2019. According to the Chamber’s latest flash survey, 60 percent of German companies in China are experiencing an economic slowdown, with varying degrees of intensity in the individual key industries. Nevertheless, around two-thirds of surveyed companies will either not plan adjustments in turnover, profit, investment and employment or even intend to increase their forecast in these areas. On average, every second German company in China seems to have considered the economic trends and realistically planned their turnover and profit targets, investments and employment figures for 2019. About every fifth company (18 percent) even intends to expand employment and every sixth company is considering increasing its investment plans. But there are divergences in the sectors as well. While the German machinery/industrial equipment industry remains steady in China and business service providers are even more optimistic about the future, weak domestic consumption in China is leaving a trace on automotive companies. Around every second respondent in the industry adjusts downwards in terms of turnover, profit and investment forecasts, while only employment figures are comparatively stable.


A total of 236 member companies in China took part in the flash survey conducted by the German Chamber of Commerce on business development in China in the first quarter of 2019 between 25 March and 8 April. All results and graphics can be found here.

The monthly and quarterly reports of the German Chamber of Commerce in China provide information on the most important key indicators of bilateral trade and provide an overview of the economic situation in China. The complete Q1 report as well as monthly economic data sheets can be found here.