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February 15, 2016

2016 Outlook -- China's High-Wire Balancing Act

2016 Outlook -- China's High-Wire Balancing Act
Dr. Jennie S. Hwang, CEO, H-Technologies Group
For the recent few months, aside from the U.S. presidential campaign news, China has taken center stage in the abundance of media coverage and expert commentaries. Unsettling news from China seem to emerge relentlessly ranging from its last summer's stock meltdown to the International Monetary Fund's approval of adding the yuan to the fund's Special Drawing Rights currency basket to the concerns about China's economic slowdown.

So what is the driver behind all these news and events about China?

China, as the world's second largest economy and the world's most populous country, contributes approximately 38% of the global growth (2014) and more than 15% of the global GDP. China's stability and stabilizing growth will be essential to the world economy and the corporate businesses.

In China's 13th luminous Five-Year-Plan (2016-2020), the government is committed to a structural transformation, allowing market forces to play a more important role in setting the yuan exchange rate, and will continue reforms in its financial system and in modernizing its underdeveloped capital market.

These structural changes impose tremendous challenges in managing the yuan and in communicating with investors with clarity and transparency. Facing market pressure by allowing modest depreciation of the currency in the coming year, China's central bank is in a dilemma. On the one hand, it wants the yuan to devalue, on the other hand, it has to mitigate the risks associated with depreciation in terms of repaying the dollar-denominated debt, the impact on currencies of China's trading partners, the social issues including the impact of stock market, as well as the capital flight.

All in all, without expansive discussion, keeping the yuan's stability should be the number one priority. Stemming the vicious cycle of a weakening currency, easing credit and capital flight demands complex policies and tactics.

The country plans to create appropriate monetary conditions for structural reforms -- more flexible monetary policy and more forceful fiscal policy, while keeping the growth humming. At the government's Central Economic Work Conference (December 14, 2015), China's leaders signaled they will take further steps to support growth, including widening the fiscal deficit and stimulating the housing market, to put a floor under the economy's slowdown.

Balancing the intricate interplay of reform and growth will be an ever-trickier endeavor.

In terms of China market, 2016 will not be an exciting year to many multinational companies' topline, especially by comparing with what many companies have enjoyed over the last decade. China's economy with double-digit growth rate as demonstrated in last two decades is the way of the past. However, even slowing down, China is expected to continue to grow at a pace that make major developed economies envy. Maintaining the growth in the range of 5% to 7% over the next few years is a pragmatic target. In a long run, a higher percentage does not necessarily translate into a more robust and stable economy. In the event that the target lands below 6.5%, the fear factor may rule the market. The market could view it unfavorably that would especially weigh on commodities.

China is in a state of critical transition from an investment-centric to a consumption-driven economy - a complex challenge to its government, its society and the business enterprise. Although no shortage of skeptics, telling indicators point to the fact that there are tools in Beijing's toolbox (recognizing some tools may not be that easy to be masterful at.)

China's president Xi expressed that China has been and continue to be both "engine and stabilizer" for the world's economy. Between the U.S. and China, competition and cooperation is expected to coexist. There will be many areas of competition and many areas of cooperation. To this end, foreign policies of both countries are of paramount importance to the economic health and geopolitical stability of the globe.

The head of the International Monetary Fund, Christine Lagarde, remarked that the China's move to a healthier-but-slower-growth path is one of the top thrusts that are most impactful on the global economy in 2016.

In doing brininess, we should not lose sight of the absolute scale of China's economy. Which market is aligned with 6% GDP while keeping inflation low (my 3-5 rule on emerging market investment)? In addition, which market is larger in almost any industry sector? To foreign companies, China's new Five-year-Plan bears a plethora of business implications. I see specific opportunities in individual areas and industry sectors. Some sectors have reported increased orders.

How we tackle China business depends more than ever on the industry sector where we compete, on our depth of knowledge, and on our effective use of talents.

Take the bull by the horns - It takes an ingenious and visionary CEO, supported by the savvy, forward-looking oversight of its board, to steer through this turbulent yet most rewarding time!

About the Author: Dr. Hwang, an international businesswoman, international speaker, and business and technology advisor, is a pioneer and long-standing contributor to SMT manufacturing since its inception as well as to the lead-free electronics implementation. Among her many awards and honors, she is inducted to the WIT International Hall of Fame, elected to the National Academy of Engineering, and named an R&D-Stars-to-Watch. Having held senior executive positions with Lockheed Martin Corp., Sherwin Williams Co., SCM Corp, IEM Corp., she is currently CEO of H-Technologies Group providing business, technology and manufacturing solutions. She serves as Chairman of Assessment Board of DoD Army Research Laboratory, Commerce Department's Export Council, National Materials and Manufacturing Board, various national panels/committees, international leadership positions, and the board of Fortune-500 NYSE companies and civic and university boards. She is the author of 450+ publications and several textbooks, and a speaker and author on trade, business, education, and social issues. Her formal education includes four academic degrees as well as Harvard Business School Executive Program and Columbia University Corporate Governance Program. Further info: www.JennieHwang.com.

Dr. Jennie S. Hwang, CEO
H-Technologies Group