In Q2 2018, the continuity of financial deleveraging and trade frictions with the US moderated China’s GDP growth to 6.7% y/y from 6.8% y/y in the previous quarter. Due to robust transactions in central and western China, sales of commodity housing registered a 13.2% y/y growth during the first half of 2018 compared to 10.4% y/y growth during the first three months of the year. The buoyant home sales pushed up housing price even as restrictive measures, including limits on housing purchase, mortgage, selling price, and reselling, have been resolutely implemented by both central and local government to stabilise the real estate market. NBS data suggested that in June 2018 the prices of newly constructed commodity residential buildings increased m/m in 63 cites out of 70 cities monitored by the authorities. This figure marked the fourth consecutive monthly acceleration and is the highest number in the past 22 months. Tier-2 and tier-3 cities registered the highest price increases of 6.3% m/m and 6% m/m respectively.

The railway sector has been playing a vital role in China’s social and economic development. The country relies on railway freight, including that of natural resources such as coal, or metal ores. Dynamic urbanisation and socioeconomic changes, on the other hand, increase rail passenger traffic. The country is the second largest railway freight transporter in net tonne-km (tkm) globally and the largest passenger carrier in terms of passenger-km (pkm). It also operates the world’s largest highspeed railway (HSR) network. China’s dynamic railway expansion began after it adopted the Medium to Long Term Plan for Railway Network Development in 2004.

The revenue of China’s food sector in the second quarter of 2018 dropped by 24.8% y/y to RMB 469.4bn, mainly due to decreased prices of meat and refined edible vegetable oil. Meat prices in Q2 2018 slid by 6.6% y/y because of a decline in pork prices. In H1 2018, the price of pork fell by 12.5% y/y due to oversupply in the segment. Refined edible vegetable oil price in the first half of 2018 was down by 1% y/y. The total profit of the food sector in Q2 2018 plummeted by 30.1% y/y to RMB 35.5bn, due to decreased sales and prices. In Q2 2018, most food production saw a significant decline. The production of fresh and refrigerated meat in this period slumped by 35.8% y/y to 5.8mn tonnes due to growing inventory. The output of refined edible vegetable oil in Q2 2018 plunged by 32.3% y/y to 12.2mn tonnes, due to decreased production of oil bearing crops.

China’s retail sector continued to grow in Q2 2018, although the pace of growth slowed down to 3.7% y/y. The sector was driven by strong domestic consumption which contributed 78.5% to the country’s economic growth in the first half of 2018. High consumption was largely a result of rising incomes, with disposable income per capita increasing by 8.7% y/y to RMB 6,248 in Q2 2018. The most dynamic growth was registered in the premium goods and services segment. Online retail generated RMB 2,149bn in sales of consumer goods and services, up by 26.2% y/y, with sales of consumer goods alone going up by 27.9% y/y to RMB 1,671bn. The quarter was characterised by increased implementation of new retail and internet technologies, such as big data, cloud computing, and augmented and virtual reality (AR, VR), aimed to stimulate consumption. In May 2018, Alibaba’s Tmall and Intersport Co Ltd set up a partnership on integrating their physical and online operations through implementation of digital technologies. In Q2 2018, online retailers continued to combine their online and offline operations. Alibaba expanded its Hema branded grocery chain, while JD.Com signed a strategic cooperation agreement with Lushang Group on unbounded retail development in Shandong province. In terms of retail formats, sales of convenience stores, supermarkets and department stores increased by 7.6%, 4.5% and 1.6% y/y respectively, in the first half of 2018.

The revenue of China’s communication equipment sector in the first half of 2018 rose by 10.9% y/y, boosted by increased sales of mobile communication station equipment, according to a report released by the Ministry of Industry and Information Technology (MIIT). The sector’s total profit during this period slid by 4.3% y/y due to increased costs. The gross value added of communications equipment manufacturing in H1 2018 increased by 13.4% y/y, higher than the 12.4% y/y growth of the electronic manufacturing sector, the MIIT said. The higher production of mobile communication station equipment contributed to the growth. From January to June 2018, the output of mobile communication station equipment was up by 1.2% y/y to 145.1mn gates, driven by increased construction of mobile communication base stations. At the end of June 2018, the total number of mobile communication base stations in China reached 6.2mn, up from 5.9mn a year earlier.

domestic consumption. Growth accelerated in 2017 for the first time in four years, recovering from the slowdown of 2016. Robust growth in 2017 was mainly attributed to the momentum of government policy support, strengthening external demand, and progress in domestic reforms. Inflation remains stable at around 2% and fiscal policy has remained expansionary. Growth in the Chinese economy is likely to decelerate over the next five years as the growth momentum from the fiscal stimulus ceases to have an effect on the economy. Also, the supervisory and regulatory actions that are being taken to guard against financial sector risks, together with overcapacity reduction, is likely to result in lower growth in the medium term. According to the latest IMF World Economic Outlook, average growth in the period 2018-2022 will be 6%, decelerating from 6.7% in 2017 to 5.8% in 2022. In 2018, growth is expected to slow down to 6.4% with domestic demand increasing by 6.9%. With the structural transformation now underway, the Chinese economy will become less reliant on investment and exports. During the five-year period, the share of capital formation in GDP will decline from 43.7% in 2017 to 41.4% in 2022. The current account surplus will also decline from 1.4% of GDP in 2017 to 0.4% in 2022.

China’s economy continues to transform to a more sustainable growth driven by domestic consumption. Growth is expected to stabilise at 6.7% y/y in 2017 after the slowdown in 2016 driven by the accommodative fiscal policy and the recovery of external demand. In 2017, domestic consumption is expected to improve by 8.6% y/y from 8.4% y/y in 2016, and exports will rebound by for the second consecutive year. Over the next five years, China will continue to transition to a slower, but a more sustainable growth. Inflation is expected to stabilise at 2% y/y in 2017, and improve to 2.6% y/y by 2020. Credit growth will slow down reflecting the regulatory measures of the Chinese government and the cooling real estate market in tier-one and “hot” tier-two cities. Domestic demand will continue to strengthen even though at a slower pace. Over the next five years, China’s current account surplus will be declining steadily due to the increase in the imports of goods, and the continuing increase in tourism outlays.

China’s aviation sector is dominated by China’s four largest carriers – namely China Southern Airlines (CSA), Air China, China Eastern Airlines (CEA) and Hainan Airlines – which between them control about 80% of the market in terms of total RTK. They face little competition from foreign carriers due to airport capacity limits and airspace restrictions. Overseas carriers often enter into codeshare agreements with China’s major airlines. According to the CAAC, China had a total of 58 airlines at the end of 2017, including 43 state-controlled and 15 privately-owned. Among them there were eight allcargo airlines, ten joint venture airlines and seven publicly-listed airlines.

China’s economy continues to make the transition to a more sustainable type of growth driven by domestic consumption. Growth accelerated in 2017 for the first time in four years, recovering from a slowdown in 2016. The robust growth in 2017 was mainly attributed to the momentum of government policy support, increasing external demand, and progress in domestic reforms. Inflation remains stable at around 2% and fiscal policy remained expansionary. Growth in China is expected to decelerate over the next five years as the growth momentum from the fiscal stimulus ceases to have an effect on the economy. Also, the supervisory and regulatory actions underway to limit financial sector risks, along with and overcapacity reductions, will result in lower growth in the medium term. According to the latest IMFWorld Economic Outlook , the average growth in the period 2018-2022 will be 6%, decelerating from 6.7% in 2017 to 5.8% in 2022. In 2018, growth is expected to slow down to 6.4% with the domestic demand increasing by 6.9%. With the structural transformation currently underway, the Chinese economy will become less reliant on investment and exports. During the five-year period 2018-2022, the share of capital formation will decline from 43.7% in 2017 to 41.4% in 2022. The current account surplus will also decline from 1.4% of GDP in 2017 to 0.4% in 2022.

Russian and Chinese companies are set to play a larger role in Egypt's infrastructure landscape in the coming years, gradually eroding the market share of traditionally dominant domestic companies. Egypt's proven public-private partnership framework will continue to offer international companies an avenue to gain exposure in the country's infrastructure sector. Egypt's challenging macroeconomic environment will impel a gradual diversification of the country's infrastructure competitive landscape, as the government's fiscal woes deepen its reliance on foreign investment to deliver critical infrastructure projects. Mirroring growing bilateral ties, we expect countries like China and Russia in particular to emerge as key financiers of Egyptian infrastructure assets, and subsequently, for Chinese and Russian construction companies to thereby increase their market share in the coming years. Despite the growing presence of Chinese and Russian firms, international investors will still be able to capitalise on a robust public-private partnership (PPP) framework in capturing contract opportunities, especially in higher value-added roles, such as consulting, design and equipment supply, where we expect firms in developed markets to retain a competitive advantage.