Apologies! jf

Joe Smith

JOE SMITH’S DILEMMA

JF’S 4 BASIC QUESTIONS

1. HOW TO RULENeed for a strong state, authoritarian rule, justified by

ideologyPragmatismCCP dominance at all levels (societal penetration)

2. GREATNESSChina coming back as the West declines

3. TRANSFORMATIONTechnology from the West but “stay Chinese” (ti-yong?)Catch upShift from factory to innovatorGo greenDevelop the interior provinces

4. THE OUTSIDE WORLDA source for transformationShift from autarchy to engagement (globalization & WTO)A source of subversion and meddlingNo 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)

1992: ‘”Nanxun” - 1992

On his watch:Continued agriculture reform, but shift in focus to industryFurther moves away from central planning – “capitalism with Chinese characteristics”, “market socialism”

(and move from “Asian model”?)Learning from the world: the Tigers, SEZsLink China to the rest of the worldEngagement with US

BUTSupremacy of Party #1 (“4 Cardinal Principles”)Tiananmen

Time, March 3, 1997

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 achievementsEconomy, birth control, “incidents”

6

SOE vs “PRIVATE”

The Economist March 2011

BUT “INDIGENOUS INNOVATION”

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 & resourcesoil, 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;interestarbitrage

*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;

• 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;

• 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.

• 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

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, 2013USCBC—2013 Member SurveyTop 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”

Apologies! jf

Joe Smith

JOE SMITH’S DILEMMA