Latest Development

• In the first nine months of 2009, GDP grew by 7.7%, up from 7.1% in the first half.


• Added-value industrial output grew by 16.1% in October 2009, up from 13.9% in September 2009.


• CPI declined by 0.5% in October 2009 with food prices edged up 1.6% and non-food prices dropped by 1.6%.


• In October 2009, exports declined by 13.8% while imports dropped by 6.4%.


• Total RMB loans grew by 34.2% in October 2009.


• The Manufacturing Purchasing Managers’ Index improved further to 55.2% in October 2009.

China’s GDP ranked the third in the World since 2007, up from the fourth in 2006, surpassing that of Germany.

Given a weakening global economy, preliminary figure showed that the Chinese economy grew by 9% in 2008, 4 percentage points lower than 2007.  After growing at 6.1% in the first quarter of 2009, GDP grew by 7.9% and 8.9% in the second and third quarter respectively, resulting in a 7.7% growth for the first nine months of 2009.

Given a weakening global business outlook, the PBOC reversed the trend of rising interest rates and reduced the base lending rate several times since 16 September 2008. The one year base lending rate was reduced from 7.47% to 5.31% (effective 23 December 2008). The PBOC also reduced the reserve requirement ratio by 0.5 percentage points on 15 October 2008, one percentage point on 5 December 2008 and another 0.5 percentage points on 25 December 2008.

In response to the slowing exports, China also raised the VAT rebate rates in seven subsequent batches since August 2008. China also removed 77% of the items from the “restricted” category of processing trade. Measures are also introduced to stabilise the property market, such as relaxing the down payment requirement and exempting the stamp duty.  China also announced to embark upon ten major fiscal stimulus programmes with a total capital expenditure of RMB4,000 billion from now to 2010 in an effort to stimulate domestic demand.

Fixed assets investment is one of the major driving forces of the economy. After growing by 25.8% in 2007, fixed assets investment continued to grow by 26.1% in 2008. In the first ten months of 2009, fixed assets investment grew by 33.1%.

Retail sales of consumer goods grew by 13.3% in 2004 and 12.9% in 2005. Continued growth in disposable income has contributed to the steady increase in retail sales. After growing by 13.7% in 2006, retail sales increased by 16.8% in 2007 and accelerated to 21.6% in 2008. In October 2009, retail sales grew by 16.2% in nominal terms. In the first ten months of 2009, retail sales grew by an average of 15.3%. The government is aiming to further stimulate consumption and raise its contribution to economic growth.

In 2005 and 2006, the consumer price index (CPI) went up by 1.8% and 1.5% respectively. In 2007, the consumer price index went up by 4.8% with food prices increased by 12.3%. In 2008, CPI went up by 5.9% with food prices increased by 14.3%.  In October 2009, CPI declined by 0.5% with food prices edged up by 1.6% and non-food prices dropped by 1.6%.  In the first ten months of 2009, CPI declined by 1.1%.

In 2006 and 2007, added-value of industrial output (by state enterprises and large enterprises with annual sales exceeding RMB5 million) grew by 16.6% and 18.5% respectively. In 2008, added-value of industrial output grew by 12.9%. While the output of heavy industries grew by 13.2%, light industries increased by 12.3%. The output of foreign invested companies grew by 9.9%.  In October 2009, added-value of industrial output grew at 16.1%, up from 13.9% in September, resulting in an average growth of 9.4% for the first ten months of 2009.

China’s Manufacturing Purchasing Managers’ Index (PMI) (compiled by China Federation of Logistics & Purchasing and China Logistics Information Centre) improved further to 55.2% in October 2009.

Money supply - the growth of M2 (broad money supply) continued to accelerate since December 2008 and remained to grow over 28% since June 2009. The RMB loans grew by 34.2% in October 2009.

China's non-state sector expands rapidly and experiences healthy development in recent years. The status and economic contribution of private enterprises received official recognition in the 9th National People’s Congress held in March 1999. By the end of June 2009, there were 6.92 million private-owned enterprises (comparing to 1.76 million at end-2000), with 778,400 in Guangdong province.

Beginning 21 July 2005, China reformed the Renminbi (RMB) exchange rate regime by moving into a managed floating exchange rate system with reference to a basket of currencies, and the exchange rate of RMB was re-valued to 8.11 per US dollar on 21 July 2005. Effective 21 May 2007, the floating band of RMB against the US dollar is enlarged from 0.3% to 0.5% around the central parity published by the People’s Bank of China on each working day. The monthly average exchange rate of RMB was 6.8271 per US dollar in October 2009.

China's foreign exchange reserves reached US$2,272.6 billion by the end of September 2009, the largest in the world. Foreign debts amounted to US$360.6 billion at the end of June 2009 (down 3.8% from the end of 2008), of which 46.1% was medium- or long-term debts and 53.9% was short-term debts.

In 2008, the number of overseas tourists dropped by 1.4% to 130 million, and foreign exchange earning declined by 2.6% to US$40.8 billion.  According to the World Tourism Organization, China remained the 4th most popular tourist-destination (behind France, Spain and the US) in the world in 2007.

In 2008, China's total external trade reached US$2,561 billion, ranked the third in the global economy. In 2008, exports grew by 17.2% to US$1,428 billion (ranked the second in the world) while imports increased by 18.5% to US$1,133 billion (ranked the third in the world), resulting in a trade surplus of US$295 billion. In the first ten months of 2009, exports declined by 20.5% while imports dropped by 19%.

In 2008, exports of machinery, electrical and electronic products grew by 15.5% while garments and footwear increased by 3.8% and 17.2% respectively.  In Jan-Sep 2009, exports of machinery, electrical and electronic products declined by 18.8%. Exports of garments and footwear dropped 10% and 5.4% respectively for the same period.

In 2008, China's top ten trading partners were the US, Japan, Hong Kong, Taiwan region, Germany, South Korea, Australia, Russia, Malaysia and Singapore. China's trade with these ten economies together accounted for 57% of China's total external trade in 2008.

In 2008, exports of foreign-invested enterprises (FIEs) increased by 13.6%, accounting for 55% of China’s total exports, and imports increased by 10.8%, representing 55% of China’s total imports.  In the first nine months of 2009, exports of FIEs declined by 21.1% and imports dropped by 20.6%.

In 2008, the number of newly approved foreign-invested projects declined by 27.4% to 27,514, while utilized foreign direct investment increased by 23.6% to US$92.4 billion. By the end of 2008, China approved a cumulative of 659,862 foreign investment projects, with actual utilized overseas FDI amounting to US$883 billion. The leading sources of investment included Hong Kong, Japan, the US, Taiwan, Singapore and South Korea.

In 2008, FDI made by Chinese enterprises (non-financial sectors) in overseas markets stood at US$41.9 billion, an increase of 68.5%. Hong Kong is the largest recipient of capital from Chinese enterprises, accounting for 63% of the total outward FDI up to 2008. Business services (mainly investment holdings), wholesale and retail, mining and manufacturing are the leading sectors (non-financial sectors) of China's outward FDI.

As a move to liberalize trade, China has continued to reduce administrative barriers to trade by increasingly switching to the use of tariffs and exchange rates adjustments. Beginning January 2008, two categories of import commodities are still subjected to licensing controls (including 83 8-digit product codes). Since its WTO accession, China has basically fulfilled its tariff reduction commitment. The average tariff rate remains at 9.8% beginning 2009, progressively down from 15.3% in 2001.

China has gradually liberalized its foreign trading system. According to the amended Foreign Trade Law which went into effect from July 2004, all types of enterprises, including private enterprises, can register for the trading right. Individual Chinese are also allowed to conduct foreign trade under the amended Foreign Trade Law.

On 31 October 2000, the Chinese government amended the Laws on Wholly Foreign-owned Enterprises and Sino-foreign Cooperative Joint Ventures to comply with the WTO accession requirements. The Chinese government also passed the amendments to the Law of Sino-foreign Equity Joint Ventures (EJVs). After the amendments, foreign enterprises enjoy greater autonomy in sourcing raw material either in the Chinese Mainland or from elsewhere and are no longer subject to the domestic sales ratio restriction.

A new version of the “Catalogue for the Guidance of Foreign Investment Industries” came into effect on 1 December 2007. Foreign-invested projects under the categories of “encouraged” will enjoy tariff-free imports of machinery and equipment for their own use and the import value-added tax will also be exempted.

In addition, the central government has also introduced tariff-free and VAT-exemption imports of capital equipment for projects within the hi-tech and priority sectors such as energy, agriculture, transport, infrastructure, production of raw materials, and tertiary industries, as well as in the pillar industries. These moves are targeted to attract high-quality overseas investment, introduce high technologies and know-how to rationalize the country's industrial structure.

At the end of 1999, the State Administration of Taxation and Ministry of Finance jointly issued the “Circular on Tax Collection Regarding the Implementation of the Decision Made by the State Council on Strengthening Technology Innovation and High Technology Development”. According to the circular, equipment imported for the production of goods listed in the “State Catalogue of New Technology Products” and supporting technology, accessories and parts are exempted from customs duties and VAT on imports. For the import of advanced technology listed in the “State Catalogue of New and High Technology Products”, software fees payable outside China are exempted from customs duties and VAT on imports.

The Chinese mainland and Hong Kong signed the Closer Economic Partnership Arrangement (CEPA) on 29 June 2003 and the implementation details on 29 September 2003. Under CEPA, the mainland began to apply zero tariff to 374 import items of Hong Kong origin from 1 January 2004. On services sectors, the mainland began from 1 January 2004, further liberalised (comparing to WTO commitment or current requirements) 18 services sectors for Hong Kong companies on entering the mainland market.

On 27 August 2004, supplement I of CEPA was announced. Perpetuating liberalizations in the first phase of CEPA, CEPA II provides zero tariff for 713 additional Hong Kong origin products, and enlarged market access for 11 beneficiary service sectors stated in the first phase of CEPA and 8 new services sectors of Hong Kong.

On 18 October 2005, supplement II of CEPA was announced. Under CEPA III, the mainland agrees to give all products of Hong Kong origin tariff free treatment. For products which have no agreed CEPA rules of origin at present, Hong Kong will initiate discussions with the mainland twice a year upon requests by local manufacturers. Regarding trade in services, there are 23 liberalisation measures under CEPA III, covering ten areas. On 27 June 2006 (supplement III of CEPA), 15 more liberalisation measures spreading across ten services areas were announced and the number of products with agreed CEPA rules of origin increased to 1,407.

On 29 June 2007, supplement IV of CEPA was announced. Beginning on 1 January 2008, the mainland introduced 40 liberalisation measures in 28 service areas, including 11 new services areas. The number of products with agreed CEPA rules of origin stood at 1,502 at the beginning of 2008.

On 29 July 2008, supplement V of CEPA was announced. Beginning 1 January 2009, the mainland will introduce 29 liberalisation measures covering 17 services sectors. The total number of services sectors covered by CEPA will be expanded from 38 to 40. Hong Kong and Guangdong will also implement a package of liberalisation and facilitation measures on an early and pilot basis to enhance mutual economic and trade co-operation.

On 9 May 2009, supplement VI of CEPA was signed. Supplement VI contains a total of 29 liberalisation measures, covering 20 service sectors.  The total number of service sectors covered by CEPA will be expanded from 40 to 42 beginning 1 October 2009.

Hong Kong is so far the most important entrepot of the Chinese Mainland. If re-exports to and from the Chinese Mainland are included, about 17% of the Mainland‘s foreign trade were handled via Hong Kong. The figure will be higher if transhipment of goods to and from the Mainland via Hong Kong is also included. According to the HKSAR government statistics, in 2008, 62.5% of re-exports were of China origin and 48.9% were destined for the Chinese mainland.

Hong Kong is the largest source of overseas direct investment in the Chinese Mainland. By the end of 2008, among all the overseas-funded projects approved in the Chinese Mainland, 45.3% were tied to Hong Kong interests. Utilized capital inflow from Hong Kong amounted to US$349.6 billion, accounting for 39.6% of the national total.

Chinese Mainland is one of the leading sources of inward investment in Hong Kong. According to the HKSAR Census and Statistics Department, the mainland's cumulative direct investment in Hong Kong was US$479 billion or 41% of Hong Kong's total stock of inward direct investment at the end of 2007. As of December 2008, 465 mainland companies were listed in Hong Kong, comprising H-share, red-chip and private companies with total market capitalization of US$790 billion, or 60% of the market total. For the past 10 years, mainland companies have raised more than US$180 billion in Hong Kong.

Hong Kong was the Mainland's third largest trading partner (after the US and Japan) in 2008. According to China's Customs Statistics, bilateral trade between the Mainland and Hong Kong amounted to US$203.7 billion (8% of the Mainland's total external trade) in 2008. Of which exports from the Chinese Mainland to Hong Kong grew to US$190.7 billion, making Hong Kong the second largest export market after the US.

The Mainland has been Hong Kong's largest trading partner since 1985. Share of the Mainland in Hong Kong's global trade jumped from 9.3% in 1978 to 47.5% in 2008. The Chinese Mainland was Hong Kong’s largest import source accounting for 46.6% of Hong Kong’s total imports, and the largest export market accounting for 48.5% of Hong Kong’s total exports in 2008.

Hong Kong's trade with the Chinese Mainland is to a large extent related to outward processing activities. In 2008, 34.4% of Hong Kong's total exports (of which 38.1% of Hong Kong’s domestic exports and 34.3% of re-exports) to the Chinese Mainland were related to outward processing activities. Meanwhile, 55.9% of Hong Kong‘s imports from the Mainland and 70.1% of Hong Kong's re-exports of the Mainland origin to all countries other than China were related to outward processing.