China – what do we really know?

November 16, 2017, by Hubert Fromlet, Kalmar

Negative comments on China and its economy are currently increasing. Certain analysts even claim that the next global economic and/or financial crisis will have its start in China but without giving any timing. This brings me to John Frankenstein – a Hong Kong professor and journalist – who often in the 1990s explained to me his own “Frankenstein’s Law”, not really more than the following question: “What do we really know about China?”

The same question still can be raised, followed by “what do we really know about future politics by the General Secretary of the CCP and President of China, Xi Jinping?” Certainly not enough to be provided with more knowledge than so far about China in the forthcoming five years – and thus, we do not know enough about future conditions for foreign (Swedish) companies in China.

More lately, increasing cases of impediments for foreign companies in China are reported. These cases, however, reflect only individual (micro) examples. But what is really known about all this in a larger (macro) context? More examples are given by the European Union Chamber of Commerce in China with its 1600 members, more lately no less than 795 recommendations (Position Papers, 2017/2018, http://www.europeanchamber.com.cn/en/publications-position-paper#download-table-293). Considering all this, improvements are certainly desirable and necessary.

We do know that China normally wants to reform things slowly. This certainly includes also many economic reforms. But will there be new or changing priorities? What about future reforms of the financial system? What does the fight against corruption mean in more practical terms? Could all this make foreign business in China more complicated?

As a concrete question along with Xi’s considerable strengthening of his own position is whether this change may impede more transparency. So far, there was much more of a collective political leadership within the Standing Committee. The new, almighty position of Xi Jinping, however, can possibly lower the speed of moves to more transparency because of this new concentration of individual power. More individual power also means more individual responsibility. We will see.

I am not only talking about lagging transparency when it comes to political decision-making but also related to a maintained or even growing political influence on economic statistics (particularly in a slowing economy). This Chinese statistical phenomenon is always a topic to complain about; or how would one comment that the recent ratio of non-performing bank loans (NPL) at the end of the third quarter 2017 exactly remained on the same spot as three months earlier (1.74 percent of all bank credit volumes). Again: too much accuracy.

Altogether, there is an increasing need of analyzing conditions for (foreign) business in China. Both micro and macro analysis are needed. However, only one side of China has been analyzed above. Not to forget: The other side of the coin of developing China into an economic superpower is still in place. Consequently, China remains exciting – with both opportunities and risks, also on the corporate level.

 

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board

 

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