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5 White Paper on the Business Environment in China
is passage from China Daily hits all the right rhetorical monopolized by state-owned enterprises, given the
notes but is totally tone-deaf in terms of its overall argument. vested interest of [certain groups].16
Rule of law, not “Western-style democracy” (the phrase itself
being somewhat handwavey in terms of what it signi es), is is is arguably an understatement of the economic
what most informed critiques of Chinese politics call for. challenges that China currently faces.
Indeed, things like transparency, accountability and rule- Discussing why “China’s domestic stock markets are
based governance are what is sorely needed and what would languishing near three-year lows and on the nose with retail
be bolstered by meaningful political reform. investors,”17 Reuters o ers a laundry list of issues currently
facing the economy:
is position is certainly not limited to foreign observers.
China Daily itself quotes Shandong University president Xu Two-thirds of Chinese companies that have posted
Xianming as saying that, “ e rule of law, if implemented third-quarter earnings missed expectations, according
properly, will be instrumental in helping the country cope to Citi Private Bank. Pro ts fell an annual 5.8 percent,
with prominent risks, such as corruption [because] govern- and analysts, on average, are still cutting earnings ex-
ment o cials will be deprived of their privileges, which are a pectations for next year.
root cause of corruption.”15
Leverage has soared above comfortable levels, with
Xinhua, ever one to join a popular cause, notes that not Beijing-based consultancy GaveKal-Draganomics
only has the Party itself warned that “corruption could lead to expecting corporate debt to hit 122 percent of GDP
‘the collapse of the Party and the fall of the state,’”11 but that: by the end of the year, up from 108 percent at end-
2011.
Seven hundred years ago, during the Ming Dynas-
ty, Chinese o cials convicted of taking bribes were Rising non-performing loans (NPLs) pose a risk for
skinned alive in public. But even severe penalties like the banks, a hangover from cheap credit as part of the
those failed to deter greedy and reckless o cials; the 2008/09 stimulus. Goldman Sachs & Co estimates
‘national disease’ of corruption contributed signi - the NPL ratio is more than six times the o cial re-
cantly to the fall of the dynasty.11 ported rate of 0.97 percent.
“Having tried out di erent remedies,” Xinhua concludes, Further, China’s industrials were owed more than 8
“China is just one step away from a cure that has been proven trillion yuan in net receivables at the end of Septem-
e ective in countries the world over: the public disclosure of ber, up 16.5 percent from a year earlier, according to
government o cials’ assets.”11 the National Bureau of Statistics.17
e Economic Picture “Today, Chinese economic policy-makers are hamstrung
in trying to revive economic growth,” writes widely-published
Beyond public anger over o cials’ conduct, observers are professor of government Minxin Pei. “ e combination of lo-
increasingly pointing to signs that China’s economy is in need cal government indebtedness, massive bad loans hidden in the
of fundamental rebalancing. banking system, anemic external demand, and diminishing
returns from investments has made it all but impossible for
e Washington Post writes: Beijing to use the same old economic playbook to re up the
economy.”18
e rst and most pressing issue [the newly-appointed
Standing Committee of the CPC] will tackle is China’s e issue of primary concern is that there is currently no
slowing and hamstrung economy. e party has long feasible replacement for the investment-driven growth mod-
said its goal is to wean the country o its dependence el that has propelled the Chinese economy over the past 30
on investment growth and exports while increasing years, and the that same investment-driven model grows more
domestic consumption. But changing policies could dangerous by the day.
prove di cult, requiring a host of reforms—such as
allowing interest rates to rise and letting China’s cur- A recent International Monetary Fund (IMF) report ob-
rency oat freely—that party leaders have long re- served that “a sustained period of over-investment [means]
sisted. that China now [requires] ever higher investment to gener-
ate the same amount of growth, forecasting that investment’s
Equally di cult will be disassembling industries share of GDP could soar to 60-70 percent from current levels
16
is passage from China Daily hits all the right rhetorical monopolized by state-owned enterprises, given the
notes but is totally tone-deaf in terms of its overall argument. vested interest of [certain groups].16
Rule of law, not “Western-style democracy” (the phrase itself
being somewhat handwavey in terms of what it signi es), is is is arguably an understatement of the economic
what most informed critiques of Chinese politics call for. challenges that China currently faces.
Indeed, things like transparency, accountability and rule- Discussing why “China’s domestic stock markets are
based governance are what is sorely needed and what would languishing near three-year lows and on the nose with retail
be bolstered by meaningful political reform. investors,”17 Reuters o ers a laundry list of issues currently
facing the economy:
is position is certainly not limited to foreign observers.
China Daily itself quotes Shandong University president Xu Two-thirds of Chinese companies that have posted
Xianming as saying that, “ e rule of law, if implemented third-quarter earnings missed expectations, according
properly, will be instrumental in helping the country cope to Citi Private Bank. Pro ts fell an annual 5.8 percent,
with prominent risks, such as corruption [because] govern- and analysts, on average, are still cutting earnings ex-
ment o cials will be deprived of their privileges, which are a pectations for next year.
root cause of corruption.”15
Leverage has soared above comfortable levels, with
Xinhua, ever one to join a popular cause, notes that not Beijing-based consultancy GaveKal-Draganomics
only has the Party itself warned that “corruption could lead to expecting corporate debt to hit 122 percent of GDP
‘the collapse of the Party and the fall of the state,’”11 but that: by the end of the year, up from 108 percent at end-
2011.
Seven hundred years ago, during the Ming Dynas-
ty, Chinese o cials convicted of taking bribes were Rising non-performing loans (NPLs) pose a risk for
skinned alive in public. But even severe penalties like the banks, a hangover from cheap credit as part of the
those failed to deter greedy and reckless o cials; the 2008/09 stimulus. Goldman Sachs & Co estimates
‘national disease’ of corruption contributed signi - the NPL ratio is more than six times the o cial re-
cantly to the fall of the dynasty.11 ported rate of 0.97 percent.
“Having tried out di erent remedies,” Xinhua concludes, Further, China’s industrials were owed more than 8
“China is just one step away from a cure that has been proven trillion yuan in net receivables at the end of Septem-
e ective in countries the world over: the public disclosure of ber, up 16.5 percent from a year earlier, according to
government o cials’ assets.”11 the National Bureau of Statistics.17
e Economic Picture “Today, Chinese economic policy-makers are hamstrung
in trying to revive economic growth,” writes widely-published
Beyond public anger over o cials’ conduct, observers are professor of government Minxin Pei. “ e combination of lo-
increasingly pointing to signs that China’s economy is in need cal government indebtedness, massive bad loans hidden in the
of fundamental rebalancing. banking system, anemic external demand, and diminishing
returns from investments has made it all but impossible for
e Washington Post writes: Beijing to use the same old economic playbook to re up the
economy.”18
e rst and most pressing issue [the newly-appointed
Standing Committee of the CPC] will tackle is China’s e issue of primary concern is that there is currently no
slowing and hamstrung economy. e party has long feasible replacement for the investment-driven growth mod-
said its goal is to wean the country o its dependence el that has propelled the Chinese economy over the past 30
on investment growth and exports while increasing years, and the that same investment-driven model grows more
domestic consumption. But changing policies could dangerous by the day.
prove di cult, requiring a host of reforms—such as
allowing interest rates to rise and letting China’s cur- A recent International Monetary Fund (IMF) report ob-
rency oat freely—that party leaders have long re- served that “a sustained period of over-investment [means]
sisted. that China now [requires] ever higher investment to gener-
ate the same amount of growth, forecasting that investment’s
Equally di cult will be disassembling industries share of GDP could soar to 60-70 percent from current levels
16
