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MS Advisory wishes you Happy Chinese New Year and a successful Year of the Rat!

Monday 20/01/2020
Chinese New Year 2020

Chinese New Year is relatively early, on 25 January 2020. The "Year of Pig" ends and we will enter the "Year of the Rat". According to Chinese legend, the rat is the first animal to have reached the Heavenly Gate. It is the first in line of the twelve zodiac animals.  

Rats are known to be intelligent, clever and versatile. In Chinese culture rats are known for being good with money and because of their reproduction rate, they are associated with fertility. The rat is the first zodiac animal. This means that a new Chinese zodiac cycle starts. People born in the years 1960, 1972, 1984, 1996 and 2008 are also rats.

During the Chinese New Year period, from 10 January to 18 February, the Chinese population is expected to embark on more than three billion trips. For comparison, during the Spring Festival season, over 200 million people travel long distance. People will travel back to their hometowns to spend time with friends and family and the majority of businesses will close for at least 3 days. Therefore, it is important for individuals and especially companies to plan ahead for their China operations and supply chain.

Topics to follow in 2020

The year 2020 already started and this year marks the implementation of the Corporate Social Credit System (CSCS) and the Foreign Investment Law (FIL). Even though the CSCS and FIL have been under development for a while, we are looking forward to observe the implementation as of this year.

Moreover, the US-China trade tensions are an important topic to follow. The phase one trade deal has been signed, but there is still a long way to go to ease all the trade tensions between the two economic power houses. In addition, regulatory development cannot be completely separated from geopolitical developments and therefore we will keep a close eye on new regulations aimed at promoting foreign investment.

In addition to this, China will have to deal with a slowing economy. With the thirteenth five-year plan coming to an end this year and the government target to double China’s 2010 GDP level by 2020, the country hopes to meet its ambitious goals. Including the recently upwardly revised 2018 GDP figures, the economy needs to grow at least 6.1% in 2020 to achieve this goal. With the economy slowing down to 6.0% growth in the third quarter of 2019, the slowest pace since 1992, expectations are that the growth rate for 2019 will be 6.1 and in 2020 is expected to fall below the 6% threshold at 5.8%. Analysts have warned that rash measures to achieve the growth target could hurt future growth of the economy. Therefore, it will be interesting to see what the government will do to attain the goal of a “moderately prosperous society”.

Our expectations for the Year of the Rat

While China was able to push forward its economy by itself for years and seemingly unfathomed by external factors, it is currently facing several external challenges as well as internal pressures. The ongoing trade tensions with the US and the concern in the rest of the world with respect to China’s growing influence on a global stage present challenges the country will have to overcome. Moreover, the slowdown of the economy causes concern in the country as well. However, China’s GDP is still expected to grow by 5.8%. To put this into perspective, the projected growth rate for the US is 2.3% and for the Euro Area it is 1.6%. With a growth rate of 5.8%, the amount China adds to its GDP in a year is more than the entire GDP of economies such as Turkey or Switzerland.

Companies should make sure they understand the challenges and opportunities in the country. Some industries and sectors have become saturated, but the continuing growth creates new opportunities in different industries and regions. Especially the changing consumption patterns of the middle class and the growth of said middle class in the lower tier cities give way to many opportunities for both domestic and foreign companies alike. Where the implementation of the New Foreign Investment Law should further improve the business climate for foreign companies, paving the way for foreign companies to tap into new markets in China.