Subscribe to the weekly email to get CPW in your inbox days before it is posted to the web. Just send an email to firstname.lastname@example.org.
Download this week’s newsletter as a PDF here: CPW No. 8 (Mar 10-16)
Dear friends and colleagues,
I’m still on the road, so another abbreviated version this week. Old issues are always available at www.chinapoliticsweekly.com. Sign up or unsubscribe by sending an email to email@example.com.
The view from Beijing
Over the past week, I have been running around Beijing meeting with a clutch of intelligent folks in the public and private sector. Much like the air in the capital, the outlook is murky; some see an imminent slowdown while others argue that the fundamentals for sustained growth are firmly in place.
Ultimately, where one falls on the bear-bull spectrum depends on how much faith one has in leaders’ ability to implement the ambitious reform agenda laid out at the Third Plenum. I remain cautiously optimistic as, from my perspective, the new administration has a clear grasp of the problems they face and an energetic determination to tackle them.
While the ultimate success of China’s reforms is up for debate, there does seem to be consensus on several trends. Briefly, these are:
- Credit is becoming more scarce. The authorities’ efforts to rein in the shadow banking sector seem to be working. It will likely depress growth in the short term, but is an indicator that the financial system is moving towards a more sustainable model that does a better job of pricing risk. The government seems determined to control lending, so even if February’s weak economic data is a harbinger of a slowdown, I would expect any stimulus to be weighted towards targeted fiscal measures, as opposed to large-scale monetary easing.
- Chinese companies are becoming more competitive. Several friends and colleagues at MNCs said that they are increasingly under pressure from domestic competitors. Chinese companies are becoming more professionally managed, and often possess an agility and decisiveness that large global corporations lack. They are also more attuned to local consumer preferences- an increasingly important attribute as China’s domestic consumption grows.
- The anti-corruption campaign shows no sign of decelerating. There are no longer doubts about the seriousness of the campaign, or the determination of Xi Jinping and Wang Qishan to rein in the excesses of the past decade(s). Officials are nervous, and many are looking to leave government.
On Saturday, the CDIC announced its next round of inspection tours; they will focus on officials in Beijing, Tianjin, Liaoning, Shandong, Henan, Hainan, Gansu, Ningxia, Xinjiang, as well as the Xinjiang Production and Construction Corp (otherwise known as the bingtuan), the Ministry of Science and Technology, Fudan University and state-owned agricultural giant COFCO.
Companies need to redouble efforts to ensure compliance. Government relations strategies also need to be rethought, as certain guanxi could suddenly turn from asset to liability.
- The nature of government is changing. Several people mentioned that government is becoming both less intrusive (with the major exception of in the media/culture sphere) and more receptive to consultation. Businesses should look to leverage these expanding channels of influence.
- The challenges China, and the Party, face are enormous. Despite progress in most areas the change management that the Party is undertaking is immense. The problem is less one of will, and more one of capability. For example, officials know they need to clean up the environment, but they currently don’t know how to monitor, or even define, pollution, much less control it. Laws and regulations are improving with regards to IPR, bankruptcy, competition and other areas that foster a healthy business environment, but there is still a lack of sufficient legal and judicial expertise to make the laws “work”.
Building these capabilities is a long-term process. China is attempting large-scale change that requires a high degree of sophistication and coordination while still being at a relatively low level of development.Success will not be defined by where we are at the end of Q2, but rather where we are in 2020.
In case you didn’t notice, Xi is now head of another leading small group, this one focused on reform of national defense and the military. Arguably the biggest of China’s many vested interests, it’s a positive sign that Xi is directly targeting the military for reform.
Xi’s success at consolidating power is impressive, and beyond what anyone foresaw. He has quickly become China’s strongest (and most ambitious) leader since Deng.