The impact of China’s new economic policy on corporations

August 8, 2017, by Hubert Fromlet, Kalmar

Here we have a topic I frequently use to discuss with students and companies. Two factors play in this context a decisive role for the corporate sector: the geographical location of the headquarters (home country) and the volume of activities.

If we concentrate the answer on a non-Chinese and probably not very small company, the following areas or departments of the company may feel or will/may be affected by the results of the new economic policy (if business with China is not too limited): strategy, sales (marketing), purchasing, product development, production, finance, human capital formation, investor relations, etc., i.e. major parts of the company in the case of quite extensive business with China. However, smaller foreign companies with more limited commercial relations to China may be affected by China’s economic reform policy as well.

The composition of Chinese imports from the developed world will in the future change a lot compared to the past two or three decades – the demand patterns of the young and urban population included. The application of digitalization will certainly increase rapidly in the – so far – second largest economy in the world. Digitalization will also affect many production processes. China wants to establish itself as a technological and an economic superpower – and means it seriously.

Consequently, many foreign companies will be forced to develop new business models and/or products for China. In certain cases may, for example, even future or potential reforms of the Chinese tax and fee system or educational reforms become parameters of interest for Western corporations.

It should be added that also many Chinese companies will have to change their business models, either to maintain current good positions, to expand in the future or in order to survive. This angle should not be neglected – and it will also affect purchasing managers in OECD countries. Competition within China will increase, too.

More could be mentioned. The objective of this little article is not to give a comprehensive answer to all possible effects of China’s new economic policy on corporate strategies and decisions in the rest of the world – but to indicate that there will be effects.

However, all the different kinds and volumes of these reform effects cannot be singled out today. More hints may come from the – probably – five new members of the Politburo’s Standing Committee. They will be selected at the 19th National Congress of the Communist Party of China this coming fall.

Do not hesitate to continuously watch political developments in China. The link to business with China is obvious and will become increasingly important!

 

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

 

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