Rebalancing of China’s Economy Poses Threat to Enterprises in Asia Pacific

Business leaders across the Asia Pacific (APAC) region believe that the rebalancing of China’s economy, which rose to the second place from the third of last year, poses threat to enterprises in the region, according to Grant Thornton’s latest “International Business Report” (IBR) titled Future of Asia Pacific.

The findings also show that economies across the region have formed closer links with China in recent years, thus augmenting the impact of China’s economy on the business environment of the region.

The IBR surveyed 675 businesses leaders in APAC, and the results reveal that ageing population was still regarded by most of them (35.7%) as a major threat, followed by the rebalancing of China’s economy (33.8%) and the regional conflict caused by competing territorial claims (32.1%).

Enterprises are encouraged to diversify their businesses

China’s rebalancing of economy refers to the reduction in its reliance on fixed asset investment for growth and the switch to consumption and service sectors as key drivers for future growth. Indeed, after a decades-long “growth miracle,” China’s economy has lately become a source of mounting concern.

According to a report published earlier by the International Monetary Fund (IMF), the Chinese economy will potentially face a bumpy transition and is likely to face risks resulting from rapid credit growth in the medium term.

Robert Quant, Grant Thornton’s global leader of collaboration and capability with regional responsibilities for APAC, noted that a number of economies across the region have formed close links with China in recent years.

"In light of China’s transition to a more service-led economy, enterprises in the region need to take proactive steps to adapt and minimize the risks of their overreliance on the country," he said.

While China is going to remain a hugely important trading power, firms are advised to explore ways to diversify their businesses – not only to deepen the relationships with their trading partners, but also to promote the diversity of products and service offerings, so as to cope with the potential impact of the rebalancing of China’s economy.

Envisioning business automation and Trans-Pacific Partnership

When asked about their opinions on what will be the key opportunities for APAC over the next five years, 28.6% of the business leaders in the region said it would be the business automation technology while 25.4% regarded to be Trans-Pacific Partnership (TPP).

Quant notes that the ageing population continues to pose both challenges and opportunities to the region. With the evolution of business automation technology, the ordinary way the businesses operate will be changed fundamentally.

“Only those who recognize the transformative power of technology and automate business tasks and processes are likely to stand a better chance of success in the years ahead.

“The TPP is generally quite positively received, particularly among the developed economies across the region. However, the business leaders should also take into consideration the political challenges resulting from the rise of populist politics that might seek to undermine the multilateral trade agreements in favor of protectionist policies.”

Business optimism increases significantly across the ASEAN countries

On the other hand, the IBR shows that the overall business optimism level in APAC increased by seven percentage points to net 28% in the second quarter of 2016. Optimism among the ASEAN countries, in particular, increased to a significant level of 34% in the second quarter of 2016.

“The increase in optimism across the ASEAN countries was remarkable and it was attributable to the opportunities presented by the launch of the ASEAN Economic Community last year, as well as the positive government initiatives.

“However, there are challenges posed by the growing trend of ageing population and China’s potential, further economic slowdown – both can have a significant impact on the countries in the region (including the ASEAN countries),” adds Quant.

 

 

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