Highlights from Chinese commercial sector report and their implications for Southeast Asia (Part 1)

In the first of a two-part dispatch, we visit some of the regulatory changes that China will implement in 2019, and how that will impact Southeast Asia.

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Highlights from Chinese commercial sector report and their implications for Southeast Asia (Part 1)

With a slowing economy in China amid an ongoing trade war with America, China’s retail sales growth for 2019 is expected to decline to around 9%, says Hong Kong-based Fung Business Intelligence in its “China’s Commercial Sector” report. However, there are also opportunities within the Chinese commercial market—the Chinese government has been actively seeking ways to stimulate domestic consumption and expand imports, such as reducing reserve ratio requirements and implementing tax cuts.

The report highlights key developmental trends that we should expect in China this year. Here are three predictions on regulatory developments that will take place in the country:

A new e-commerce law will improve market regulation

Merchants selling knock-offs have long since left dingy street markets and moved online. As e-commerce platforms face pressure to protect intellectual property rights, the Chinese government is passing a new law to hold these operators liable along with online vendors that sell counterfeit products. Operators like Alibaba, Pinduoduo, and JD.com now have more reason than ever to ensure that listings for fake goods are taken offline, and in turn, clean up China’s reputation of being a major source for counterfeits.

Increased global sourcing and imports will boost the quality of life

China has fashioned itself as a champion of globalisation as a vacuum remains in global economic leadership. Its government is seeking higher levels of imports, and enterprises are following suit. For Chinese businesses to stand out, they must seek out new products and services from across the globe and use technology to optimise supply and demand. In turn, consumers can take advantage of better value for imported goods.

Spending by the ballooning middle class in China is one of the biggest counters against slowing growth in the country. The government’s pledge to boost imports will, in theory, bring in more high-quality foreign products for a segment of the population whose disposable income is increasing.

China’s government will launch expansionary measures to foster a conducive business environment

To alleviate external economic pressures, the Chinese government will implement policies that reduce the costs of running a business. It will introduce value-added tax reductions, raise the minimum threshold for personal income tax, cut electricity consumption costs for businesses, and reduce reserve ratio requirements.

 

What do these developments mean for Southeast Asia?

It may be cliché to say that when China sneezes, the world catches a cold. But the adage holds true. After the United States and China ramped up tariffs in their ongoing trade war, the Asian Development Bank noted that some of Southeast Asia’s export economies—including Singapore, Thailand, Malaysia, and the Philippines—saw slowing growth on an annual basis from July to September last year.

In the same vein, a recent report by the Institute of Chartered Accountants in England and Wales’ on Southeast Asia predicts that the region’s economic growth will slow to 5% in 2019.

Even as China butts heads with America, Fung Business Intelligence’s report indicates that the Chinese government will implement expansionary fiscal measures to spur consumption and make it easier to do business. One upside is obvious: export economies like those in Southeast Asia will also benefit from the Chinese government’s decision to increase imports and services to US$30 trillion and US$10 trillion, respectively, in the next 15 years.

Editor: Brady Ng