China overseas investment and trade - H1 2022

Please note, this publication is in Chinese only.

We expect supply-side shocks and elevated inflation, fueled further by the war in Ukraine, to slow the momentum of the world economy this year after a strong recovery in 2021 from the COVID-19 shock. Inflation pressure is forcing major central banks to accelerate their monetary tightening schedules this year, which we expect to put downward pressure on growth. We assess the likelihood of recession outcomes over the next 12 months in several key economies, notably the euro area but also the US, to have increased significantly. We forecast below-consensus global real GDP growth of 3.3% and global annual inflation of 6.8% this year, as of May 2022. We view high inflation as the biggest macro risk, while tightening financial conditions and geopolitical risk are also key to watch. 

China's economic momentum is softening due to COVID-19 restrictions, with an expected lower GDP growth rate in 2022-23 than we anticipated in late 2021. It faces three major challenges that the government highlighted in its 2022 working agenda: shrinking demand, both domestic and external; supply-side shocks; and weakening economic expectations. The Chinese government has set a GDP growth target of around 5.5% and a CPI inflation target of around 3% for 2022. The weakness in the real estate sector, soft consumption demand due to the "dynamic zero-Covid" strategy, and external uncertainties persisted through Q1. However, China's monetary and fiscal position remains relatively strong and the expansionary fiscal policy and easing monetary conditions are expected to help stabilize economic growth. Although the geopolitical shock has increased commodity prices, which will weigh on PPI inflation, China's CPI inflation is likely to remain muted given weak consumption demand. We now forecast 4.6% real GDP growth and 2.3% CPI inflation for 2022.

China's international trade (exports and imports) reached USD 6.1 trillion in 2021. Overall exports from China in 2021 rose 29.9% y-o-y to USD 3.4 trillion, and imports to China increased 30.1% to USD 2.7 trillion. Meanwhile, China's trade with countries along the Belt and Road Initiative (BRI) route rose 23.6% y-o-y to about USD 1.8 trillion in 2021, accounting for around 30% of overall trade value. Total trade between China and other members of the new Regional Comprehensive Economic Partnership (RCEP), which came into force in January 2022, increased by 18.1% y-o-y to USD 1.9 trillion in 2021. We expect the RCEP will bring additional trade volume within member countries over the coming decades as economic ties in the region become increasingly integrated.

China's outbound direct investment (ODI) flows reached a total value of USD 145.2 billion in 2021, up by 9.2% y-o-y. The majority was non-financial ODI, which increased 3.2% y-o-y to USD 113.6 billion. BRI countries received USD 20.3 billion of Chinese ODI, up by 14% y-o-y and accounting for about 18% of the total.

The BRI has strengthened economic relations between China and the Latin America & Caribbean region (Latin America). China's bilateral trade with this region increased by 41.1% y-o-y to USD 451.6 billion in 2021. Brazil, Mexico, Chile, Peru and Colombia are China's top five trading partners in Latin America. Given their comparative advantages, bulk commodities are major exports from Latin America to China, while China exports largely machinery and electronic products to Latin America. Latin America is now also the second largest destination for ODI from China, into energy, infrastructure, agriculture and manufacturing industries, as well as services sectors like IT, finance and e-commerce, in recent years.

We expect growing insurance opportunities to emerge from China's increasing trade and investment in Latin America. More trade will boost demand for cargo and trade credit insurance, while greater investment will benefit engineering, property and liability insurance. There would also be more demand for personal L&H covers for employees working aboard. As Chinese firms expand their business footprint in Latin America, we expect China's insurers to bring innovative practices and expertise to the emerging markets in this region, benefiting the development of local insurance markets in the longer term.