06 November 2018
Import Expo shows China’s consumption potential to the world

 

The first China International Import Expo opened in Shanghai on November 5, attracting 172 countries, regions and international organizations to participate and more than 3,600 companies to exhibit. The Expo will be held every year. China vows to further reduce tariffs and increase imports, and open markets to foreign companies and competition. We expect China to become the world’s largest importer by around 2022. China’s consumption will become an important engine for global economy.

More than 3,600 companies participate in the Expo, with the largest number of exhibitors coming from the category of foods & agricultural products. There are seven exhibition areas for consumer electronics & home appliances, clothing & everyday consumer goods, automobiles, intelligent and high-end equipment, foods & agricultural products, medical devices & health care, and service trade. Foods & agricultural products have the largest number of exhibitors, followed by clothing & everyday consumer goods. Judging from the over 2,600 exhibitors which open an online showroom on the Expo’s website, nearly half are Asian companies and about one-quarter are European firms; and the top five countries or regions with the most exhibitors are Japan, South Korea, Germany, the US, and Hong Kong.

China vows to further reduce tariffs and increase imports. We expect China to become the world’s largest importer by around 2022. President Xi Jinping announced at the opening ceremony of the Expo that China will further reduce tariffs and increase imports. He estimates that China’s total imports of goods and services in the next 15 years will exceed US$30trn and US$10trn, respectively. We expect China’s imports of goods and services in 2018 to reach US$2trn and US$520bn. A total of US$30trn goods imports and US$10trn service imports in the next 15 years imply CAGRs of about 0% and 3%. We predicted in a report published in December 2017 that China would become the world’s largest importer by around 2022.

China’s current account rebalances and may alternate between surplus and deficit in the future. China has been running a current account surplus in the past two decades. China’s current account surplus to GDP ratio averaged 3.3% in 1994–2017. The ratio hit a high of 9.9% in 2007, fell after the global financial crisis, and dropped to 1.3% in 2017. China recorded a current account deficit of US$12.8bn (0.1% of GDP) in the first three quarters of 2018. We expect China’s current account to be nearly balanced in 2018. As China further increases imports, its current account may alternate between surplus and deficit.

The proportion of consumer goods in China’s imports will further increase. China’s savings rate peaked at 52.3% in 2008 and fell to 47% in 2017. The UN predicts that the proportion of working-age population in China’s population will continue to decline in the coming decades. We expect China’s savings rate to fall further. Both the share of consumption in China’s economy and the proportion of consumer goods in China’s imports are likely to increase. Most of the Expo’s seven exhibition areas are related to consumption. In the long run, China’s consumption should become an important engine for global economic growth.

China will further open markets to foreign companies and competition, which will present both challenges and opportunities for domestic firms. The Expo shows China’s determination to open up its markets. China will continue to ease market access, strengthen intellectual property protection and improve the business environment. President Xi stated at the opening ceremony of the Expo that China will treat all types of enterprises registered in the country equally, which illustrates the principle of competitive neutrality. Introducing competition to the domestic market will likely put pressure on domestic companies in the short term, but will also stimulate their efficiency and innovation in the long term.