What can we expect in China in 2018?

by Gordon Orr/ December 2017/ McKinsey

The nation could be shaped by geopolitics, momentum from robust economic growth, and a host of new leaders eager to implement new policy.

With so many new leaders put in position over the last six months by President Xi, an overall leader secure in his position and clear on his objectives, 2018 is likely to see much more activity to implement policies, economic and social, that move China in the direction that Xi wants. We may need to worry more about overenthusiastic implementation of policy than the inaction we have often seen in 2017.

The nation could be shaped by geopolitics, momentum from robust economic growth, and a host of new leaders eager to implement new policy.

With so many new leaders put in position over the last six months by President Xi, an overall leader secure in his position and clear on his objectives, 2018 is likely to see much more activity to implement policies, economic and social, that move China in the direction that Xi wants. We may need to worry more about overenthusiastic implementation of policy than the inaction we have often seen in 2017.

China’s continued international expansion—with bigger bumps in the road

After a pause and reset to eliminate outbound investment that the government found frivolous, China Inc.’s outbound investment will resume its upward trajectory in 2018, with a focus on Manufacturing 2025 sectors and Internet-enabled businesses, such as artificial intelligence (AI) and the Internet of Things. Many global-scale Chinese companies are still mostly focused in China, and they are impatient to scale elsewhere. The reality is that even in 2017, China’s more mature outbound investors kept moving ahead with strategically relevant investments ranging from computers, aviation, and automotive to wealth management, schools, and healthcare. Many of these more mature investors already have businesses outside China of the scale of a Fortune 500 company, with the ability to raise cash where they need it for investment. Geographically, Brazil, Japan, and the United Kingdom in particular saw increased interest. In 2018, investment in these sectors will continue with a particular emphasis on the service sectors—healthcare, tourism, education, gaming, and similar.

The international reach of China’s tech companies and investors grew and grew with myriad, often minority, investments too small to show up in national statistics but that gave companies access to innovative technology and business models to scale in China. In 2018, a lot more attention will be paid to global Chinese investment in these fin-, med-, and edtech and AI start-ups, with political pushback in the United States, leading them to focus more heavily on Israel, Scandinavia, and the United Kingdom. De facto, many Chinese investors will simply assume that they could not get approval for investment in the United States and so won’t try. If US–China economic relations deteriorate significantly, we even might see real pressure to break up deals consummated in years past. Read more…

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