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5 White Paper on the Business Environment in China
the government again lent support to its state champions. and tax reform.”1
According to the Wall Street Journal, the number of state- Also in 2013, two major developments of signi cance
owned enterprises as a share of the total continued to fall,
dropping to 5% in 2011. But with SOEs still dominant, their occurred – widely perceived as the response of President Xi
share of total output remained relatively high at 26%. 21 Jinping and his new generation of advisers and leaders to
mitigate the risks of a major economic slowdown:
A lending splurge in 2009-10 as China responded to the
global nancial crisis also hurt its future growth prospects. In September 2013, the Shanghai government announced
the launch of the China (Shanghai) Pilot Free Trade Zone
e ratio of outstanding credit to GDP increased from (SFTZ), a pilot area for broader economic reforms in areas
around 116% in 2002 to 172% in 2011, according to China such as investment approvals, trade facilitation, nancial
Real Time [Wall Street Journal] estimates.21 innovation, risk management, and administrative licensing. 1
Critics of [Mr. Hu and Mr. Wen] argue that reforms stalled In November 2013, President Xi Jinping and his
on their watch, as they focused, “above all, on keeping China government laid out, at the Communist Party’s ird Plenum
stable.” “Hu Jintao and Wen Jiabao’s generation could have of the CCP’s 18th Party Congress, a road map for the
achieved a lot, but they did not,” said Yao Bo, a former China reform necessary to replace the current economic model and
Daily columnist. “ ey inherited good foundations, but they reinvigorate China’s growth. Known as the “Decisions,” the
did not make a di erence,” he added.22 report at its core called for market forces to assume “a decisive
role in allocating resources.”2 e ird Plenum served as
On November 2012, President Xi Jinping assumed a platform for the broader reform agenda, through both
leadership of China as a strong advocate for a new wave of high-level statements and a set of post-plenum documents
economic reforms. He inherited an economy that was already that provided more detail on the direction of reform. ese
showing a sharp deceleration, likely to sink to 6.8 percent in documents included key indicators of priorities, including
2015 and 6.5 percent in 2016, according to a recent forecast setting a “decisive” role for the market in the economy,
outlined in Newsweek magazine by Wang Tao, the chief China reforming China’s tax and nance regime, and improving
economist at UBS.2 foreign investment1
After years of double-digit annual growth, this type of Daniel Rosen, a principal at the Rhodium Group, a New
slowdown – “growth that falls too far below 7 percent” could York consultancy, and author of a November 2014 report
be “dangerous” for China’s ruling Communist Party, states published by the Asia Society on the prospects for economic
the same Newsweek report, visualizing that “the prospect of reform in China, argues that “China’s development model is
young college graduates not being able to nd jobs, or of poor obsolete and in need of urgent, not gradual, replacement.” 2
farmers migrating to new urban areas only to be unable to
In Mr. Rosen’s report, he notes that “to justify the risks [of
nd work, or of large rms going bankrupt, triggering layo s, reform], President Xi quoted an impassioned plea for policy
worries China’s leadership.”2 modernization by his predecessor Deng Xiaoping: the only
way to avoid a dead end – a blind alley – is to deepen reform
Mindful of this, China’s leadership had earlier already and opening both at home and with the world.” 15
begun an active discussion on the process of promoting and
implementing economic reform but the discussion was not In the same report, Mr. Rosen outlines the intriguing
accompanied by any actual meaningful implementation. As conundrum faced by China in the next several years, specu-
observed by the US-China Business Council Economic Report lating that “if Beijing shifts direction along the lines it has
Scorecard, the discussion process really “advanced in late announced, the behavior of Chinese companies, government
2011, more than a year before China’s 2012-2013 leadership agencies, and individual members of society is likely to change
transition”, just a year before the ascension of Xi Jinping as in remarkable ways – and thereby create opportunities for the
China’s president and head of the Chinese Communist Party rest of the world. Should the reform program stall, the ef-
(CCP) and Li Keqiang as premier and head of the powerful fects will be just as profound. Either way, China’s new policy
State Council. e US-China Business Council noted that design, and its success or failure in achieving it, will have a
Mr. “Xi came to power as a strong proponent of economic major in uence on the international economy and stability
reform, fueling speculation about its scope, scale, and speed.” 1 and security in Asia and beyond.”15
In 2013, the US-China Business Council continued to ob- e core document issued in November 2013 during the
serve, China’s government agencies began issuing “o cial reg- Communist Party’s ird Plenum of the CCP’s 18th Party
ulations, statements, and editorials supporting reform goals Congress, known as Decision of the Central Committee of the
and hinting at the evolving internal discussions about reform Communist Party of China on Some Major Issues Concerning
implementation. ese releases covered an array of reform is- Comprehensively Deepening Reform, or simply the Decisions,
sues, including nancial liberalization, the role of state-owned was accompanied by personal Explanatory Notes under
enterprises (SOEs) in the economy, administrative licensing,
40
the government again lent support to its state champions. and tax reform.”1
According to the Wall Street Journal, the number of state- Also in 2013, two major developments of signi cance
owned enterprises as a share of the total continued to fall,
dropping to 5% in 2011. But with SOEs still dominant, their occurred – widely perceived as the response of President Xi
share of total output remained relatively high at 26%. 21 Jinping and his new generation of advisers and leaders to
mitigate the risks of a major economic slowdown:
A lending splurge in 2009-10 as China responded to the
global nancial crisis also hurt its future growth prospects. In September 2013, the Shanghai government announced
the launch of the China (Shanghai) Pilot Free Trade Zone
e ratio of outstanding credit to GDP increased from (SFTZ), a pilot area for broader economic reforms in areas
around 116% in 2002 to 172% in 2011, according to China such as investment approvals, trade facilitation, nancial
Real Time [Wall Street Journal] estimates.21 innovation, risk management, and administrative licensing. 1
Critics of [Mr. Hu and Mr. Wen] argue that reforms stalled In November 2013, President Xi Jinping and his
on their watch, as they focused, “above all, on keeping China government laid out, at the Communist Party’s ird Plenum
stable.” “Hu Jintao and Wen Jiabao’s generation could have of the CCP’s 18th Party Congress, a road map for the
achieved a lot, but they did not,” said Yao Bo, a former China reform necessary to replace the current economic model and
Daily columnist. “ ey inherited good foundations, but they reinvigorate China’s growth. Known as the “Decisions,” the
did not make a di erence,” he added.22 report at its core called for market forces to assume “a decisive
role in allocating resources.”2 e ird Plenum served as
On November 2012, President Xi Jinping assumed a platform for the broader reform agenda, through both
leadership of China as a strong advocate for a new wave of high-level statements and a set of post-plenum documents
economic reforms. He inherited an economy that was already that provided more detail on the direction of reform. ese
showing a sharp deceleration, likely to sink to 6.8 percent in documents included key indicators of priorities, including
2015 and 6.5 percent in 2016, according to a recent forecast setting a “decisive” role for the market in the economy,
outlined in Newsweek magazine by Wang Tao, the chief China reforming China’s tax and nance regime, and improving
economist at UBS.2 foreign investment1
After years of double-digit annual growth, this type of Daniel Rosen, a principal at the Rhodium Group, a New
slowdown – “growth that falls too far below 7 percent” could York consultancy, and author of a November 2014 report
be “dangerous” for China’s ruling Communist Party, states published by the Asia Society on the prospects for economic
the same Newsweek report, visualizing that “the prospect of reform in China, argues that “China’s development model is
young college graduates not being able to nd jobs, or of poor obsolete and in need of urgent, not gradual, replacement.” 2
farmers migrating to new urban areas only to be unable to
In Mr. Rosen’s report, he notes that “to justify the risks [of
nd work, or of large rms going bankrupt, triggering layo s, reform], President Xi quoted an impassioned plea for policy
worries China’s leadership.”2 modernization by his predecessor Deng Xiaoping: the only
way to avoid a dead end – a blind alley – is to deepen reform
Mindful of this, China’s leadership had earlier already and opening both at home and with the world.” 15
begun an active discussion on the process of promoting and
implementing economic reform but the discussion was not In the same report, Mr. Rosen outlines the intriguing
accompanied by any actual meaningful implementation. As conundrum faced by China in the next several years, specu-
observed by the US-China Business Council Economic Report lating that “if Beijing shifts direction along the lines it has
Scorecard, the discussion process really “advanced in late announced, the behavior of Chinese companies, government
2011, more than a year before China’s 2012-2013 leadership agencies, and individual members of society is likely to change
transition”, just a year before the ascension of Xi Jinping as in remarkable ways – and thereby create opportunities for the
China’s president and head of the Chinese Communist Party rest of the world. Should the reform program stall, the ef-
(CCP) and Li Keqiang as premier and head of the powerful fects will be just as profound. Either way, China’s new policy
State Council. e US-China Business Council noted that design, and its success or failure in achieving it, will have a
Mr. “Xi came to power as a strong proponent of economic major in uence on the international economy and stability
reform, fueling speculation about its scope, scale, and speed.” 1 and security in Asia and beyond.”15
In 2013, the US-China Business Council continued to ob- e core document issued in November 2013 during the
serve, China’s government agencies began issuing “o cial reg- Communist Party’s ird Plenum of the CCP’s 18th Party
ulations, statements, and editorials supporting reform goals Congress, known as Decision of the Central Committee of the
and hinting at the evolving internal discussions about reform Communist Party of China on Some Major Issues Concerning
implementation. ese releases covered an array of reform is- Comprehensively Deepening Reform, or simply the Decisions,
sues, including nancial liberalization, the role of state-owned was accompanied by personal Explanatory Notes under
enterprises (SOEs) in the economy, administrative licensing,
40
