Prospects for the Development of China's Foreign Contracted Projects in 2019

In recent years, China's outsourcing contracting industry has been outstanding against the background of the global industry slowdown. But it should also be noted that under the general trend of global economic recovery, all kinds of contradictions and conflicts are more complex, which not only restricts the recovery of the market, but also increases the uncertainty and risk of Engineering projects. It should be noted that change brings risks as well as opportunities for development. Looking ahead to 2019, China's foreign contracting engineering enterprises need to respond positively to enhance their sustainable development ability with the concept of mutual benefit and win-win.

The global economic and trade environment still faces enormous challenges

The ENR analysis shows that the global market began to improve in 2018 after seven years of slow growth, but may be different in 2019. The market of foreign contracted projects is closely related to the level of economic development. The global economy will continue to expand in general in 2019. Influenced by protective measures of some countries, the speed of economic expansion has slowed down, which exerts pressure on the development of the contracted projects industry.

The International Monetary Fund (IMF) pointed out in its World Economic Outlook (WEO) in January 2019 that the momentum of global economic expansion has weakened. The growth rate is expected to be 3.7% in 2018, 3.5% in 2019 and 3.6% in 2020, respectively. After the downward growth rate reported by WEO in October last year, the growth rate has been reduced by 0.2 percentage points and 0.1 percentage points respectively. If calculated according to market exchange rate, the world economic growth rate will continue to decline from 3.2% in 2017 to 3.1%, 3.0% and 2.9% in 2018-2020, respectively. The decline in economic growth has led to a decrease in government revenue, and a decrease in the activity of private sector operations, which has weakened the demand for engineering projects.

Global trade volume is expected to remain stable from 2018 to 2020, at 4.0%, slowing down by 1.3% over 2017. International trade is not only a reflection of the relationship between supply and demand in the market between countries, but also greatly influenced by the international trade environment and system. Generally speaking, due to the reduction of trade volume due to economic demand, the impact on contracted projects is mostly short-term, while the impact on trade volume due to institutional changes such as trade barriers is relatively long-term.

Prices of commodities have diverged. Overall, on the basis of a 23.3% increase in 2017, oil prices continued to grow by 29.9% in 2018, bringing global oil prices to a new high since the outbreak of the economic crisis. However, due to the slowdown in economic demand and the expansion of oil production in the United States, it is expected that global oil prices will fall by 14.1% in 2019. In 2020, oil prices may continue to decline, but the decline will narrow to 0.4%. According to the weight of global commodity exports, non-fuel commodity prices will decrease by 2.7% in 2019 and increase by 1.2% in 2020 after increasing by 1.9% in 2018, and remain basically stable. The change of commodity prices reflects the willingness of enterprises to invest in the industry. With the decline of prices, the capital inflows into the oil industry decrease, which leads to the shrinkage of the market for such projects. However, non-fuel commodities reflect the industrial demand of economic activities, and basically stable prices are conducive to the development of the engineering industry.

Consumer prices are a manifestation of inflation. In 2018, the inflation rate of developed economies was 2.0%, basically reaching the goal of traditional policy regulation, while that of emerging and developing economies was 4.9%, with a slightly higher inflation rate. Inflation in developed economies is expected to be 1.7% and 2.0% in 2019 and 2020, while in emerging and developing economies it is expected to be 5.1% and 4.6% respectively. Relatively mild inflation reflects the basic balance between supply and demand in the economy, and is also conducive to orderly market expansion. The contracting project market is greatly affected by inflation, involving equipment, raw materials and human costs, etc. Relatively mild inflation is conducive to the control of industry costs, short-term project costs are reduced, and the financial risks of medium and long-term projects are also reduced accordingly.

The cost of capital financing varies with currency. For example, the six-month deposit rate of the U.S. dollar will gradually increase from 2.5% and 3.2% to 3.8% in 2018-2020, while the three-month deposit rate of the euro will reach 0% from 2017-2019, and the six-month deposit rate of the Japanese yen from 2017-2019 is expected to rise to 0.1% in 2020. The change in interest rates indicates that the US dollar remains strong, the Euro is likely to rise because of the gradual introduction of quantitative easing by the European Central Bank, and the Japanese economy is still weak in the short term. The difference of financing cost between different currencies has an impact on the currency of funds applicable to various projects, and may also affect the cost recovery of existing projects.

New Changes in the Market of Outward Contracting Projects

The characteristics of regional changes have emerged in the global contracted projects. Developed economies as a whole show a decelerating trend, with economic output falling from 2.3% in 2018 to 2.0% and 1.7% in 2019 and 2020. Output growth in emerging and developing economies is relatively stable, from 4.6% in 2018 to 4.5% in 2019, and is expected to accelerate to 4.9% in 2020.

The drop in output was most pronounced in the United States. The stimulating effect of tax reform on economy is gradually weakening, and consumer confidence is greatly affected by trade friction. The results of the US 232 survey on imported automobiles and spare parts that may affect its national security in 2019 may cause wider tensions, further increasing the economic and trade tensions between the United States and European countries and Japan. According to the WEO report, output in the United States will continue to fall to 2.5% and 1.8% in 2019 and 2020 after soaring to 2.9% in 2018. Although the United States has completed the upgrade negotiations of the North American Free Trade Agreement (NAFTA), it still needs to be considered and approved by Congress. In both houses of Congress