In 2015, China experienced its lowest economic growth rate in more than a quarter century with real GDP growth decelerating to 6.9 percent. Many economists remain pessimistic about China’s medium-term prospects for economic growth due to the slow pace of economic reforms and a failure to bring rising debt levels under control. Significant policy adjustments will be necessary to sustain economic growth.
President Xi’s historic anti-corruption campaign has had a notable impact on the way that business is conducted in China. Central, provincial, municipal officials—including those at state-owned enterprises—have adopted a more cautious approach to business. This includes showing greater reluctance to meet with their foreign counterparts.
China’s newly approved 13th Five-Year Plan (2016-2020) calls for ambitious policy reforms in order to “comprehensively build a moderately prosperous society” by doubling 2010 GDP and per capita incomes by 2020. This would require China to maintain at least 6.5 percent GDP growth over the next five years. The 13th Five-Year Plan also highlights “supply side structural reforms” particularly by prioritizing the reduction of overcapacity in manufacturing industries like steel and aluminum (in part by forcing the closure of “zombie” enterprises) and reigning in massive levels of debt and nonperforming loans. During the Fifth Plenum of the Central Committee 18th Communist Party Congress, the government emphasized five key concepts to guide development and reform: innovation as a driver for higher-quality economic growth; greater coordination to ensure balanced growth across industries and among urban and rural areas; environmentally-friendly economic growth; openness to foreign markets and taking an active role in global governance; and inclusive development that expands social services.
According to China’s Ministry of Commerce (MOFCOM), foreign direct investment in China last year rose 6.4 percent to 781.3 billion yuan (US$126.2 billion) compared to 2014’s increase of just 1.7 percent. Foreign investors set up 26,575 new enterprises on the Chinese mainland in 2015, 11.8 percent more than the year before, taking the number of foreign-invested firms to 836,404 by the end of the year with a total investment of US$1.64 trillion. Foreign capital channeled into the service sector rose 17.3 percent to US$77.2 billion, leading FDI growth and making up 61.1 percent of the total.