China's "new economy," a sector that has yet to be officially defined, may be on a downtrend, a new analysis from French bank Natixis indicated. The report noted that revenues and market shares have fallen over the past several years despite the earlier drive that spurred interest among investors.
According to the South China Morning Post, Natixis analyzed over 3,000 Chinese-listed companies and the results were more pessimistic than positive as it was revealed that the sector has been suffering from a financial crisis since 2017.
Revenues have been on a downward spiral and investments on new economy players have been less than stellar. The analysis argued that one of the main reasons for the decline is inefficiency in new economy segments as well as overcapacity.
Natixis economists Gary Ng and Alicia Garcia said of the Chinese new economy's decline that the "key problem of the new sectors" is "a compressed profit margin and a lower return on capital," as well as sliding profits.
Aside from Natixis, the Caixin-BBD new economy index also indicated that overall investment in the country's new economy sector contracted by two percent from 2017 to November 2019.
Chinese Premier Li Keqiang introduced new economy sectors, which are mostly empowered by the Internet, three years ago. The segments include but are not limited to renewable energy, real estate industries, advanced health care, semiconductor production, infrastructure and materials, online shopping, online tourism, and bike sharing.
A downtrend in the corporate financial sector has also affected the way China has been handling its drive towards adapting to the new economy. Despite some sectors shining above the rest, weak financial upticks have impacted business sentiment.
On the other hand, hopes are high for several Chinese cities and towns where stable growth was recorded over the past few months.
Earlier this month, the MasterCard Caixin BBD New Economy Index (NEI) saw an uptick in the following cities in terms of technology input and emerging industries: Tianjin, Beijing, Qingdao, and Jinan.
The report noted that there is still an imbalance in the expansion capacity of southern and northern Chinese cities as those in the South have been performing better than the rest of the country.
Furthermore, analysts with Caixin Insight Group said that compared to northern towns, southern regions have been helping add to the overall development of the Chinese new economy.
It is expected that the new economy will gradually bounce back, especially at the back of the highly anticipated China-U.S. Phase one trade deal signing, which is expected anytime this week.
