More innovation,fewer restrictions and fairer competition are key to Chinese economic growth

HONG KONG, CHINA - Media OutReach - 23 October 2018 - In 2017, the fourth year of its 'New Normal',the Chinese economy maintained stable growth while seeking stronger momentumfrom innovation and industrial upgrading. With 2018 marking the 40^thyear of reform and opening-up, changes to China's economic landscape willcontinue to foster a world-class business environment by incentivizinginnovation, lowering barriers to market entry and promoting fairer competitionamong all players, according to Deloitte's 2018 ChinaFactors -- A guide for investing in China.

China Factors isa publication of the Deloitte Global Chinese Services Group (GCSG), which advises Chinese companies expanding their globalpresence and multinational companies operating in China. In this latest edition,GCSG delves deeper into the local market landscape, analyzing key industriesoffering potentially lucrative opportunities for foreign investment.

The Chinese economy is likely todecelerate in 2018, and possibly in 2019, due to a slew of factors, Deloitteforecasts.

"Preventingfinancial sector risks has been one of top items on the policy agenda in recentyears; therefore, to rein in credit growth, which means tolerating a slower GDPgrowth target, is necessary. We expect policymakers to de-emphasize the GDPgrowth target. As such, policymakers will increase their policy leeway in orderto undertake deleveraging initiatives and SOE reforms," says Deloitte China Chief Economist Sitao Xu.

Opportunitieswill continue to abound in several growing sectors. Confident consumers,combined with consumption upgrading supported by economic transformation, willbring more opportunities in retail. Meanwhile, technological innovations,especially artificial intelligence and internet plus, are prompting fastergrowth in emerging sectors. The closely watched 19^th Party Congressin October 2017 reemphasized China's commitment to building a more conduciveenvironment for technology, adding further rigor to an already dynamic techsector. That said, rising global protectionism and China-US trade friction arecasting a shadow over exports, China's traditional growth driver. Tariff hikesare piling pressure on China to further open up its domestic market, especiallyin the manufacturing, auto, service and financial sectors, making it difficultfor companies to make key decisions, particular on their supply chains. It is not only the US putting pressure on Chinato level the playing field, concerns about market access reciprocity arewidespread.

"The best policy response would notbe tit-for-tat tariffs but rather concrete steps in opening up domestic markets,service sectors in particular, within a clearly defined timetable. At the sametime, improved market access will also defuse trade tensions," adds Xu.

The Chinesegovernment is committed to improving the investment environment. Several laws have been amended to improveconditions for foreign investors, with a raft of policies and measuresformulated to level the playing field between domestic and overseas businesses.Opening-up isalso expanding from pilot zones to other cities and China's hinterlands. The Guangdong-Hong Kong-Macao Greater Bay Area(GBA) and Belt and Road Initiative (BRI) are also providing new access pointsfor foreign investors eying China.

According to theguide, emerging technologies and innovation will drive the development of mostindustries. With the support of the Chinese government, the AI industry willredouble its efforts, aiming to create a USD150 billion market by 2030. In themedia sector, China will continue to be the top market for live streaming,attracting an estimated 456 million viewers and USD4.4 billion in revenue in2018. Meanwhile, 5G will be fast-tracked, with an expected launch in 2020accruing one billion Chinese users by 2023.

Online retail,driven by a consumption boom, grew 28% in 2017, and its penetration rate isexpected to exceed 20% by 2020. Smart manufacturing, with an additional 100pilot demonstration projects, is well on track to achieve the targeted RMB3billion by 2020. As technology becomes deeply entrenched in every industry, theamount of user data will increase with startling speed.

"The sheervolume of data can be a distinct advantage but also a challenge. ConsideringChina's population and the scale of its manufacturing industry, Chineseenterprises have natural advantages. For example, advances in machine learningare heavily reliant on data volume. However, capitalizing on that data isanother matter. Companies should work closely with data analytics specialiststo figure out customized solutions," explains Deloitte Global Chinese Services Group Partner Johnny Zhang

As well asindustry outlooks, the guide book also features a collection of regionaleconomic indicators for quick reference, covering Beijing, Tianjin, Liaoning,Heilongjiang, Shanghai, Shandong, Jiangsu, Zhejiang, Hubei, Sichuan, Chongqing,Guangdong, and Fujian. It also briefly discusses inbound investment-related taxissues and preferential tax treatments under the Enterprise Income Tax Law.

About Deloitte Global

Deloitterefers to one or more of Deloitte Touche Tohmatsu Limited, a UK private companylimited by guarantee ("DTTL"), its network of member firms, and their relatedentities.  DTTL and each of its memberfirms are legally separate and independent entities.  DTTL (also referred to as "Deloitte Global")does not provide services to clients. Please see www.deloitte.com/about tolearn more about our global network of member firms.

Deloitteprovides audit & assurance, consulting, financial advisory, risk advisory,tax and related services to public and private clients spanning multipleindustries. Deloitte serves nearly 80 percent of the Fortune Global 500®companies through a globally connected network of member firms in more than 150countries and territories bringing world-class capabilities, insights, andhigh-quality service to address clients' most complex business challenges. Tolearn more about how Deloitte's approximately 264,000 professionals make an impactthat matters, please connect with us on Facebook, LinkedIn, or Twitter.

About DeloitteChina

The Deloitte brand first cameto China in 1917 when a Deloitte office was opened in Shanghai. Now theDeloitte China network of firms, backed by the global Deloitte network, delivera full range of audit & assurance, consulting, financial advisory, risk advisoryand tax services to local, multinational and growth enterprise clients inChina. We have considerable experience in China and have been a significantcontributor to the development of China's accounting standards, taxation systemand local professional accountants. To learn more about how Deloitte makes animpact that matters in the China marketplace, please connect with our DeloitteChina social media platforms via www2.deloitte.com/cn/en/social-media.

This communication containsgeneral information only, and none of Deloitte Touche Tohmatsu Limited, itsmember firms, or their related entities (collectively the "Deloitte Network")is by means of this communication, rendering professional advice or services.Before making any decision or taking any action that may affect your financesor your business, you should consult a qualified professional adviser. Noentity in the Deloitte Network shall be responsible for any loss whatsoeversustained by any person who relies on this communication.

© 2018. For information,contact Deloitte China.