More on China’s leadership transition and its impact

Recently,China has gone through a leadership transition, a once in a decade event. We asked Zintro experts to provide us with their insights into the types of change businesses might see and how the transition of power might affect trade, global economies, and emerging economies.

Toscano, a CEO in Brazil, says that similar to any regime dominated by a single and strong party, the communist party of China seeks to establish and consolidate power. “Since the late 1970s, China has implemented reforms in a gradualist fashion, using, when necessary, the iron hand of the Communist Party. The 91-year-old CPC is inheriting successes and wealth, as well as lessons and challenges from its own course of exploration of its predecessors,” Toscano says. “However, under new conditions, the Party faces complicated and severe long-term tests in exercising governance, carrying out reform, and opening up and developing the market economy as well as tests from the external environment.”

Toscano points out that in recent years,China has renewed its support for state-owned enterprises in sectors it considers important to its economic security, explicitly looking to foster global competitiveness of some Chinese companies. “Pressing tasks include curbing widespread food and drug safety problems and stopping the flagrant abuse of power and corruption among government officials and business people,” he says.

“Chinese policymakers will have to get to an economy that expands annually by about six percent or less in the next decade. The ultra-high index of economic growth of the past soon will fade. Large growth rates were achieved, in part, by the precarious situation of the country and population of China in recent decades and partly to the global financial situation in recent years.”

With changes in the international financial world and China’s internal situation, Toscano sees a China that will become similar to countries with inflation, corruption, drugs, unemployment, economic problems, and so on. “For now, the great advantage of China over other countries is the control of its internal debt, which in accordance to government sources is 16.3 percent of GDP (2011 est.),” he says. “But,China’s growth in the past two quarters was too fast to self-sustain, resulting in a worrisome rise in inflation. The government has been trying to slow the economy by reining in the lending field. The industrial slowdown is welcome evidence that these measures are working.”

Toscano believes that the repercussions of the international financial crisis will linger for a few years, and this situation will be hampered by internal and external requirement of more assistance to the Chinese people, with the consequent burdening production costs, reduced growing GDP, and increasing internal social problems. He thinks that the most likely scenario for the next five years of the new government of China will be trying to fit the world market and the world economy and in some cases apply internally the iron hand of the party. “The solution to these issues depends on how the CPC carries out serious reforms to promote balanced, coordinated and sustainable development,” Toscano says.

Ye Sheng, an automotive consultant in mainland China, says that China’s economy is transferring from a Made-in-China to a Create-In-China economy. As such, the government’s concerns are:

  • Boosting internal domestic demand instead of investment-driven. “We will see more service industry giants rising domestically. They may transfer from low-end products to high-tech products and this will bring challenges to overseas competitors,” says Sheng.
  • Concern for socially vulnerable groups, not only the poor but also small businesses (compared to state-own enterprises). “It may entice overseas insurance companies to enter the life/medical insurance business and overseas banks to enter the market for small business loans,” Sheng explains.
  • Speed up democratic process of the central government and the society. “We’ve seen democratic signs at a basic level (county, village, such as voting for the village chief/board for decision making), which will bring a brighter change of direction for the central government and a better collaboration with USA,” says Sheng.

A related story can be found here.

By Maureen Aylward

 


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