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China's CEOs confident in their companies' resilience despite global economic and trade-related headwinds, finds KPMG survey

"Environment/climate change risks" named the greatest threat to companies' growth
2019-06-27 20:09 1502

HONG KONG, June 27, 2019 /PRNewswire/ -- China's CEOs continue to be overwhelmingly confident in the growth prospects of their companies and are positive about their companies' resilience in the face of uncertainties stemming from a volatile global economic outlook and ongoing US-China trade tensions, according to KPMG's latest China CEO Outlook report.

The report, entitled 'Agile or irrelevant: Redefining resilience - China CEO Outlook 2019', derives from a global survey of 1,300 CEOs - 125 of whom are from companies headquartered in mainland China and Hong Kong (China CEOs) - across a wide range of industries.

Top-line growth and increasing headcounts expected, but less confident about global economy

Since last year, the survey found that the confidence levels of China CEOs in their own companies have increased from 90 percent to 94 percent, with 98 percent saying they expect to see top-line growth and 96 percent expecting an increase in headcount over the next three years.

However, on the global economy's growth prospects, fewer Chinese CEOs appear confident, with less than half (48 percent) responding that they are confident or very confident - down from 76 percent last year. Despite this, China CEOs appear to be more cautious than pessimistic, with 43 percent holding a neutral view on the growth prospects for the world economy.

With respect to China, over three-quarters of Chinese CEOs polled (77 percent) say they are confident or very confident about the prospects of their country, up from 71 percent last year.

Honson To, Chairman, KPMG China and Asia Pacific, says: "In my conversations with China CEOs, it is clear that they are aware of the importance for China to continue to transition into a high value-added economy and are supportive of the measures that are being implemented to facilitate this process. This year's survey results suggest that, while facing challenges, they remain confident in the direction of China's development and its long-term prospects."

Future growth dependent on navigating shift toward low-carbon economy; Belt and Road Initiative countries favoured for overseas expansion

When asked about the greatest threat to their organisation's growth, "environmental/climate change risk" was selected by more China CEOs than any other options, 22 percent, closely followed by a "return to territorialism" at 21 percent. Consistent with this, over two-thirds of China CEOs (70 percent) told us that their organisation's growth will be determined by their ability to anticipate and navigate the shift to a low-carbon, clean technology economy. Of the China CEOs selecting "return to territorialism" as the top risk, 46 percent said they were most concerned about the ongoing China-US trade negotiations.

Despite these challenges, Chinese companies have not lost the appetite to invest overseas. All surveyed China CEOs told us that they are planning to expand overseas over the next three years, up from 94 percent in 2018. Although more than half (56 percent) are looking to invest in emerging markets, there was an increase in the proportion of China CEOs looking to invest in developed markets compared with last year, up from 30 percent in 2018 to 44 percent in 2019. Among emerging markets, close to two-thirds of global CEOs surveyed (65 percent) are prioritising countries and regions that form part of the Belt and Road Initiative.

Vaughn Barber, Global Chair, KPMG Global China Practice, says, "The 'Belt and Road' Initiative is giving rise to more cooperation opportunities between Chinese and foreign firms in emerging markets - not only in infrastructure investment but across a wider range of sectors, including financial services, logistics, trade and even digital technologies. This type of cooperation can help unlock the socioeconomic development potential of host countries, while allowing Chinese and foreign firms to access new market opportunities, achieve synergies and manage risks."

This year's survey also finds that China CEOs' appetite for conducting M&A transactions is increasing, with 85 percent of them responding that they have a high or moderate appetite for M&A transactions over the next three years, up from 76 percent last year. Comparatively, 15 percent say they have a low M&A appetite, down from 21 percent last year.

Disruption, new technology the recipe for future growth

Most China CEOs consider technological disruption as more of an opportunity than a threat (95 percent, up from 91 percent last year), and over two-thirds (70 percent) responded that their companies' growth relies on their ability to disrupt "any business norm". Over half of China CEOs (54 percent) said that they are actively disrupting the sector in which they operate rather than waiting to be disrupted, a significant increase compared with 29 percent who said the same last year.

Consistent with this, 68 percent of China CEOs said that they are investing more capital investment in buying new technology in order to improve their companies' resilience, and all surveyed China CEOs told us that their companies are either piloting or implementing AI to automate processes.

Benny Liu, Chairman, KPMG China, says: "China's CEOs recognise the challenges of operating in a complex and changing business landscape. Innovation and technological disruption continues to be at the forefront of competitor differentiation, which combined with key national initiatives such as the 'Belt and Road' and the Guangdong-Hong Kong-Macao Greater Bay Area offer unique opportunities for government and the private sector to collaborate on projects that can bring lasting benefits."

China CEOs also recognize the need to be agile and adapt quickly and efficiently to changes and disruptions coming from others. While 58 percent of China CEOs believe that acting with agility is the "new currency of business," 63 percent noted that the only way for their companies to achieve the agility they need is to increase the use of third-party partnerships. In line with these findings, more China CEOs (33 percent) chose "strategic alliances with third parties" as their most important growth strategy over the next three years, compared with other options including organic growth, M&A, joint ventures and outsourcing.

About KPMG China

KPMG member firms and its affiliates operating in mainland China, Hong Kong and Macau are collectively referred to as "KPMG China". KPMG China is based in 22 offices across 20 cities with around 12,000 partners and staff in Beijing, Changsha, Chengdu, Chongqing, Foshan, Fuzhou, Guangzhou, Haikou, Hangzhou, Nanjing, Qingdao, Shanghai, Shenyang, Shenzhen, Tianjin, Wuhan, Xiamen, Xi'an, Hong Kong SAR and Macau SAR. Working collaboratively across all these offices, KPMG China can deploy experienced professionals efficiently, wherever our client is located.

KPMG is a global network of professional services firms providing Audit, Tax and Advisory services. We operate in 153 countries and territories and have 207,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such. In 1992, KPMG became the first international accounting network to be granted a joint venture licence in mainland China. KPMG was also the first among the Big Four in mainland China to convert from a joint venture to a special general partnership, as of 1 August 2012. Additionally, the Hong Kong firm can trace its origins to 1945. This early commitment to this market, together with an unwavering focus on quality, has been the foundation for accumulated industry experience, and is reflected in KPMG's appointment for multi-disciplinary services (including audit, tax and advisory) by some of China's most prestigious companies.

Source: KPMG
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