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JOE SMITH’S DILEMMA
Joe Smith
Apologies! jf
JF’S 4 BASIC QUESTIONS
1. HOW TO RULE
Need for a strong state, authoritarian rule, justified by
ideology
Pragmatism
CCP dominance at all levels (societal penetration)
2. GREATNESS
China coming back as the West declines
3. TRANSFORMATION
Technology from the West but “stay Chinese” (ti-yong?)
Catch up
Shift from factory to innovator
Go green
Develop the interior provinces
4. THE OUTSIDE WORLD
A source for transformation
Shift from autarchy to engagement (globalization & WTO)
A source of subversion and meddling
No more “disrespect”
THE ROLE OF DENG XIAOPING
Dedicated follower of Chairman Mao?
Capitalist roader?
Authoritarian pragmatist?
Making China strong: wealth and power
Key: 3rd Plenum of the
11th Central Committee (1976)
Time, March 3, 1997
1992: ‘”Nanxun” - 1992
On his watch:
Continued agriculture reform, but shift in focus to industry
Further moves away from central planning – “capitalism with Chinese
characteristics”, “market socialism”
(and move from “Asian model”?)
Learning from the world: the Tigers, SEZs
Link China to the rest of the world
Engagement with US
BUT
Supremacy of Party #1 (“4 Cardinal Principles”)
Tiananmen
WHAT WAS BEING REFORMED?
AN OUTLINE OF “ECONOMIC EVOLUTION”
•“LEANING TO ONE SIDE” – THE SOVIET MODEL 1950S
•“RED OR EXPERT” – THE MASS LINE…PARTY CONTROL 1960S
•THE DANWEI SYSTEM
•AGRICULTURE: FROM COOPERATIVES TO COMMUNES 1950-60
•REFORM! POST-MAO
•AGRICULTURE: “RESPONSIBILITY SYSTEM” 1970S
•SLOW GROWTH OF A SEMI-PRIVATE SYSTEM AND FDI
•REFORM AND CONSOLIDATION OF SOES
DRIVERS OF THESE CHANGES…. (Opportunities for business?)
URBANIZATION: migrant workers and development of “the west”
MIDDLE CLASS EXPANSION
REFORM OF THE POLITICAL ECONOMY
Party still dominant…but power/responsibility shifts to the localities
(province, district, township)
Local power: licenses, land, credit, protection
Cadres evaluated on economic and political achievements
Economy, birth control, “incidents”
SOE vs “PRIVATE”
The Economist March 2011
BUT “INDIGENOUS INNOVATION”
6
BUT…PROBLEMS
IPR
Corruption
Overemphasis on infrastructure –
there’s a limit
Lack of social safety net – displaced workers
(End of the danwei system)
Inflation
Energy & resources
oil, food, water, environment (“China clouds”)
“WORKSHOP ON THE WANE” (FT 17Oct11)
“The export and investment-led model
behind China’s economic miracle looks
increasingly obsolete”
*No more cheap labor, cheap energy, cheap
capital, cheap land
*Inflation
*Age shifts; fewer workers
*Unbalanced growth – surge in investment,
real estate
*Housing bubble; credit bust?
*Stimulus loans to SOEs re-lent;interest
arbitrage
*SMEs have to go to loan sharks; NPLs
*Razor-thin margins
*12th FYP???
“The End of Cheap China”
Economist 10Mar12
CHINA’S 12TH FIVE YEAR PLAN… EDITED KEY POINTS
(Aspirations, Good Intentions or Reality?)
Economic targets
-- GDP to grow by 7 percent annually on average;
--- Prices to be kept generally stable.
Economic restructuring
-- Rise in domestic consumption;
-- Breakthrough in emerging strategic industries;
-- Service sector value-added output to account for 47 percent of GDP, up 4
percentage points;
-- Urbanization rate to reach 51.5 percent, up 4 percentage points.
Innovation
-- Expenditure on research and development to account for 2.2 percent GDP;
Environment & clean energy
-- Non-fossil fuel to account for 11.4 percent of primary energy consumption;
-- Energy consumption per unit of GDP to be cut by 16 percent;
-- Carbon dioxide emission per unit of GDP to be cut by 17 percent;
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Livelihood
-- Population to be no larger than 1.39 billion;
-- Pension schemes to cover all rural residents and 357 million urban residents;
-- Construction and Renovation of 36 million apartments for low-income
families;
-- Minimum wage standard to increase by no less than 13 percent on average
each year;
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Social management
-- Improved public service for both urban and rural residents;
-- Improved democracy and legal system;
-- Better social management system for greater social harmony;
-- More than 10 percent of all residents will be registered as community
volunteers.
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Reform
-- Encourage qualified enterprises to get listed in stock markets;
-- In-depth reform in monopoly industries for easier market entry and more
competition;
-- Improved government efficiency and credibility
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Checking out the usual sources:
https://www.cia.gov/library/publications/the-world-factbook/geos/ch.html
http://www.doingbusiness.org/data/exploreeconomies/china/
http://www.transparency.org/country - CHN
http://reports.weforum.org/the-global-competitiveness-report-2013-2014/
http://hdr.undp.org/en/countries/profiles/CHN
China: Market Challenges
Adapted from ITA “Country Commercial Guide”
Mixed results: some successes, some failures.
Business environment not predictable: poor IPR protection, inconsistent laws, opaque
regime
Mercantilist policies: local protection; NTBs, tech
transfer required
Legacies of planning: planning mentality, lack of understanding of markets, state/Party
involvement in companies
US firms do inadequate preparation: “MarcoPolo-it is”
AMCHAM
WHITE
PAPER 2011
http://www.amchamchina.org/businessclimate2013
China Business Environment
October 8, 2013
USCBC—2013
Member Survey
Top Ten Business Concerns Identified by Companies (2013)
1.Cost Increases
2. Competition with Chinese Companies in China
3. [tie] Administrative Licensing
3. [tie] Human Resources: Talent Recruitment and Retention
5. Intellectual Property Rights Enforcement
6. Uneven Enforcement/Implementation of Chinese Laws
7. Nondiscrimination / National Treatment
8. Transparency
9. Standards and Comformity Assessment
10. Foreign Investment Restrictions
OLD ISSUES…
STILL THERE?
“Commonplaces
of the China
trade”
JOE SMITH’S DILEMMA
Joe Smith
Apologies! jf