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Business Ease  
 
VOL.7 January 2015
What Lies Ahead
An economy continuing to moderate
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In the Chinese zodiac calendar, 2015 is the Year of the Sheep. Some say it is the zodiac sign shrouded in bad luck, not only for personal issues such as marriage and childbirth but also for business. So what can the Sino-African trader and investor look forward to?

An economy continuing to moderate – With China having sustained double-digit growth for almost three decades, the government policy now is to aim for "moderated" growth of 7.5 percent and adjust the economic structure with greater emphasis on domestic consumption. The 2015 outlook will see the growth rate continue to decline as less investment goes into fixed assets and government spending comes under more scrutiny.  

Increasing prominence of the China (Shanghai) Pilot Free Trade Zone (the Shanghai FTZ) – The Shanghai FTZ represents one of China's most ambitious economic reform policies. It goes beyond its predecessors, the special economic zones, with more liberal policies and regulations, and more sectors hitherto closed to foreign investors opened up. Foreign trade in the Shanghai FTZ exceeded $120 billion in its first year of operation. Pledges have been made to replicate the Shanghai FTZ policies in other areas. 

Continued crackdown on corruption – More actions against "flies" (low-ranking officials) and "tigers" (high-ranking officials) are expected as the government continues its fight against what it views as the biggest threat to the stability of the Party and society - corruption. Foreign and local businesses must be aware that China's business environment is evolving. What was the acceptable modus operandi in the past may no longer prevail. 

Continued focus on Africa – 2015 will witness the Sixth Ministerial Conference of the Forum on China-Africa Cooperation (FOCAC) in South Africa. The conference will review the political, economic and social commitments made during the 2012 FOCAC in Beijing. China has always exceeded previous commitments in past forums; in 2012, Beijing announced a $20-billion credit line to Africa. China to surpass this commitment can be expected once again.

Rule of Law – One of the key outcomes of the Fourth Plenary Session of the 18th Central Committee of the Communist Party of China, was a greater emphasis on law. 2015 will see the implementation of commitments from the plenary session. Combined with the anti-corruption drive, a greater emphasis on the law will change the way business is done in China and alter the overall social landscape. 

Increasing consolidation of Chinese firms, especially in mining – As China continues to pursue economic reforms and develop into a world economic power, the government has laid down clear policies to consolidate fragmented sectors that result in inefficiencies in the economy and exacerbate environmental issues. Tens of thousands of coal companies will be consolidated into more than 20 large enterprises. 2015 will see smaller enterprises going out of business or being acquired by their larger counterparts. Foreign companies should take the initiative to engage with the smaller companies in overseas projects. 

Rise of private banking – China's banking sector has long been dominated by state-owned banks led by the "Big Four." However, with the continued opening up of the financial sector, companies such as Tencent have begun offering services hitherto closed to even domestic firms. As the government continues to rein in the infamous shadow banking, private actors including peer-to-peer lending schemes will increasingly find their niches. But the state-owned enterprises won't accept this new competition without a fight. 

China's increasing role as an international economic catalyst – China is already the world's largest economy on a purchasing power parity basis and will rightly claim that position in nominal terms in due course. Along with the construction of a New Silk Road, plans for a railway linking Beijing to Europe, and launching of the Asian Infrastructure Bank, China will continue to assert its place in the global economic landscape.  

Increasing energy cooperation between China and the United States in Africa – There is an African proverb: when two elephants fight, it is the grass that suffers. However, the two giants, the United States and China, seem increasingly likely to cooperate in Africa - at least on renewable energy. A key discussion at the recent Asia-Pacific Economic Cooperation summit in Beijing was on the U.S. proposal to partner with China on improving electricity capacity in Africa. While China will continue to undertake a majority of project contracting, particularly in the energy sector, more collaboration is expected on renewable energy projects in Africa. 

Increasing mergers and acquisitions (M&A) – Chinese firms, primarily private equity and listed firms, saw an increase in overseas M&As in 2014, a trend expected to continue well into 2015. The key focus of M&As remains the natural resources China needs to continue fueling its economy as well as the high-end technology Chinese firms are looking to access.

As we head into the Year of the Sheep, African companies looking to do business in or with China should be cognizant of the changes taking place and adjust their China strategy accordingly to stay ahead of the pack.

Walter Ruigu is managing director of China Africa Merchants Advisors Ltd. (CAMAL), a trade and investment advisory firm based in Beijing and Nairobi (camaltd.com). He can be reached at wruigu@ camaltd.com

 

 

 

 

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