On the financial side, annual tax cuts and fees is reaching RMB 2.5 trillion, which will support the stabilization of the real economy. People’s Bank of China will lower cash reserve requirements for banks, releasing about RMB 530 billion (US$83.25 billion) in long-term liquidity, to ease difficulties of enterprises and promote the smooth operation of the economy.
China’s emphasis on innovation-driven development and its accelerated efforts to establish a unified domestic market have been driving FDI growth, especially in high-tech and the services sectors. MOFCOM also foresees increase of investment in alternative fuel vehicle manufacturing, with the country’s accelerated efforts to pursue innovation-driven development and a greener growth pathway.
Further standardization of the internal market also benefits foreign investors reciprocally. Free from misalignment of institutional arrangements and human factors, barriers to market entry and exit will be lessened. Domestic and international markets will be better connected, with regulations and standards more compatible and China’s dual circulation development paradigm enhanced.
In addition, the conflict between Russia and Ukraine has interrupted global supply chains of certain products and increased export controls. As geopolitical tensions increase, so will commodity and logistics costs as well. While China has refrained from joining sanctions on Russia, Beijing may face potential pullout of international investors.
China’s green transformation is also steadily advancing. Low-carbon products are growing faster. In Q1 2022, the production of new energy vehicles and solar cells increased by 140.8 percent and 24.3 percent, respectively. Clean energy consumption continues to rise.
Moreover, consumption growth was a leading contributor to China’s Q1 economy. Chinese authorities are keenly promoting the integration of online and offline consumption, developing new consumption modes, and accelerating the quality and expansion of the rural consumption market – to sustain this consumption growth.
Looking forward, several macroeconomic policies and restructuring initiatives will gradually come to effect. Below are some areas to keep track of:
The establishment of a unified domestic market to bring more efficiency to market players by reducing transactional costs.
Tax cuts and increased support for real economy that offer enterprises relief during economic distress and stabilize jobs.
Development trend of entrepreneurship and innovation sectors featuring the high-tech manufacturing industry, namely information transmission, software, and IT services.
Online retail sales on the back of attractive cross-border e-commerce comprehensive pilot zones.
Health and pharmacy industries to likely see more growth amid the COVID outbreaks.