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5 White Paper on the Business Environment in China
foreign investments on iron and steel, ethane, oil re ning, pa- When e Going Gets Tough
permaking, coal chemical equipment, automotive electronics,
hoisting machinery, electric transmission and transformation It is patently obvious that going ahead with the reform
equipment, brand liquor, feeder railway, subway, some pharma- program is bound to in ict pain in some very powerfully
ceutical products and other general manufacturing industries. entrenched interests in the Chinese economy, so all China
Worth mentioning here is that these industries with removal of watchers’ eyes fall inevitably on the man in the driving seat.
foreign investment restrictions have overcapacities. 11
Since assuming the post of general secretary of the
e draft also removes restrictions for foreign investment Communist Party in November 2012, Newsweek observes
on e-commerce, nancing companies, insurance brokers, that President “Xi Jinping has launched a tougher than
franchises, land development, and import and export com- expected crackdown on corruption, which has included
modity inspection. e draft drew on the experience of some an investigation of the family of a fellow member of the
pilot practices in the Shanghai Free Trade Zone (SFTZ), with Politburo Standing Committee, China’s highest ruling body.
some lists more open to foreign investment than the “Nega- He is largely surrounded by reform-minded advisers and has
tive List” of the SFTZ.11 given no sign that he will retreat from his agenda. He has
until 2020 to get what he wants done, and the government
Still, the core of the reform agenda is nancial liberaliza- is moving on key areas like nancial reform and a host of
tion in general and interest rate liberalization in particular. other issues, such as allowing private companies to move into
Fixed-asset investment in 2013 (investment in plants, equip- sectors now dominated by state-owned rms.” 2
ment and infrastructure) in China was 45 % of GDP, while
household consumption was only 36 % of GDP. A Newsweek Part of this market transition is the perceived uneven en-
media report indicates that it is a “critical part of the reform forcement of China’s six year old anti-monopoly law.
process for Beijing is essentially ipping those numbers” with
market forces, not the government, dictating where resources According to Businessweek, a 2014 report by the U.S.-China
should go in China’s economy and market forces, not the gov- Business Council shows that 86% of member companies
ernment, allocating credit.2 are “concerned about Beijing’s anti-monopoly enforcement
activity”, with 30 % “fearing it will be used against them”.
Newsweek notes that “the subsidized system has led to
overcapacity across the manufacturing spectrum in China’s e report said that China has stepped up investigations into
economy. at in turn increases de ationary pressure, as too the auto industry and conducted “dawn raids” at foreign
few companies have the pricing power to increase pro ts. IT companies.16 Also according to Businessweek, a separate
Banks tend to lend money almost unthinkingly to favored 2014 survey by Beijing’s American Chamber of Commerce
local employers—often state-owned themselves, usually big in China found that 60 % of respondents “believe foreign
employers in any case, with close ties to local party o cials. business is less welcome in China than before”, up from 41%
Since local party o cials were usually evaluated by the growth late last year. Nearly half of those surveyed said they have been
in jobs created in their own districts, all the incentives were targeted in pricing or anticorruption campaigns.16
aligned in one direction: more. More investment, more facto-
ries, more jobs—and more debt.”2 e U.S. Chamber of Commerce, the U.S. China Busi-
ness Council, the European Union Chamber of Commerce in
According to Newsweek, “to its credit”, President Xi’s China and the American Chamber of Commerce in China all
new government has already started to cool bank lending. lodged complaints within a few weeks of each other in Sep-
Before interest rates can be completely liberalized, however, tember 2014.17
a deposit insurance system needs to be set up. Newsweek cites
Zhang Ming, a senior research fellow at the Chinese Academy In August 2014, Chinese regulators had levied nes of
of Social Sciences in Beijing, who quotes o cials from the US$200 million on 10 Japanese auto-part makers for alleged
People’s Bank of China and says that a national deposit price manipulation. Audi AG, BMW AG and Mercedes-Benz
insurance company will be set up by early 2015. Setting up parent Daimler AG also su ered similar pricing probes. Both
national deposit insurance, Zhang says, “would pave the way Microsoft Corp and Qualcomm Inc. were investigated for
for small and medium-sized banks to fall into bankruptcy potential monopolistic activity. BMW, Audi and Daimler re-
without triggering widespread panic or runs on the remaining sponded to the investigations by cutting prices. Both Qual-
banks.” Newsweek notes that China’s Central bank governor comm and Microsoft said that their rms are abiding by laws
Zhou Xiaochuan has said deposit rates would therefore be set in China and are cooperating with authorities. 17
free “within two years.”2
In September 2014, at a meeting with foreign executives
44 at the China International Fair for Investment and Trade
(CIFIT) in Xiamen, an annual event organized by China’s
Ministry of Commerce, Vice Premier Wang Yang declared
that China is not targeting foreign multinationals in the en-
foreign investments on iron and steel, ethane, oil re ning, pa- When e Going Gets Tough
permaking, coal chemical equipment, automotive electronics,
hoisting machinery, electric transmission and transformation It is patently obvious that going ahead with the reform
equipment, brand liquor, feeder railway, subway, some pharma- program is bound to in ict pain in some very powerfully
ceutical products and other general manufacturing industries. entrenched interests in the Chinese economy, so all China
Worth mentioning here is that these industries with removal of watchers’ eyes fall inevitably on the man in the driving seat.
foreign investment restrictions have overcapacities. 11
Since assuming the post of general secretary of the
e draft also removes restrictions for foreign investment Communist Party in November 2012, Newsweek observes
on e-commerce, nancing companies, insurance brokers, that President “Xi Jinping has launched a tougher than
franchises, land development, and import and export com- expected crackdown on corruption, which has included
modity inspection. e draft drew on the experience of some an investigation of the family of a fellow member of the
pilot practices in the Shanghai Free Trade Zone (SFTZ), with Politburo Standing Committee, China’s highest ruling body.
some lists more open to foreign investment than the “Nega- He is largely surrounded by reform-minded advisers and has
tive List” of the SFTZ.11 given no sign that he will retreat from his agenda. He has
until 2020 to get what he wants done, and the government
Still, the core of the reform agenda is nancial liberaliza- is moving on key areas like nancial reform and a host of
tion in general and interest rate liberalization in particular. other issues, such as allowing private companies to move into
Fixed-asset investment in 2013 (investment in plants, equip- sectors now dominated by state-owned rms.” 2
ment and infrastructure) in China was 45 % of GDP, while
household consumption was only 36 % of GDP. A Newsweek Part of this market transition is the perceived uneven en-
media report indicates that it is a “critical part of the reform forcement of China’s six year old anti-monopoly law.
process for Beijing is essentially ipping those numbers” with
market forces, not the government, dictating where resources According to Businessweek, a 2014 report by the U.S.-China
should go in China’s economy and market forces, not the gov- Business Council shows that 86% of member companies
ernment, allocating credit.2 are “concerned about Beijing’s anti-monopoly enforcement
activity”, with 30 % “fearing it will be used against them”.
Newsweek notes that “the subsidized system has led to
overcapacity across the manufacturing spectrum in China’s e report said that China has stepped up investigations into
economy. at in turn increases de ationary pressure, as too the auto industry and conducted “dawn raids” at foreign
few companies have the pricing power to increase pro ts. IT companies.16 Also according to Businessweek, a separate
Banks tend to lend money almost unthinkingly to favored 2014 survey by Beijing’s American Chamber of Commerce
local employers—often state-owned themselves, usually big in China found that 60 % of respondents “believe foreign
employers in any case, with close ties to local party o cials. business is less welcome in China than before”, up from 41%
Since local party o cials were usually evaluated by the growth late last year. Nearly half of those surveyed said they have been
in jobs created in their own districts, all the incentives were targeted in pricing or anticorruption campaigns.16
aligned in one direction: more. More investment, more facto-
ries, more jobs—and more debt.”2 e U.S. Chamber of Commerce, the U.S. China Busi-
ness Council, the European Union Chamber of Commerce in
According to Newsweek, “to its credit”, President Xi’s China and the American Chamber of Commerce in China all
new government has already started to cool bank lending. lodged complaints within a few weeks of each other in Sep-
Before interest rates can be completely liberalized, however, tember 2014.17
a deposit insurance system needs to be set up. Newsweek cites
Zhang Ming, a senior research fellow at the Chinese Academy In August 2014, Chinese regulators had levied nes of
of Social Sciences in Beijing, who quotes o cials from the US$200 million on 10 Japanese auto-part makers for alleged
People’s Bank of China and says that a national deposit price manipulation. Audi AG, BMW AG and Mercedes-Benz
insurance company will be set up by early 2015. Setting up parent Daimler AG also su ered similar pricing probes. Both
national deposit insurance, Zhang says, “would pave the way Microsoft Corp and Qualcomm Inc. were investigated for
for small and medium-sized banks to fall into bankruptcy potential monopolistic activity. BMW, Audi and Daimler re-
without triggering widespread panic or runs on the remaining sponded to the investigations by cutting prices. Both Qual-
banks.” Newsweek notes that China’s Central bank governor comm and Microsoft said that their rms are abiding by laws
Zhou Xiaochuan has said deposit rates would therefore be set in China and are cooperating with authorities. 17
free “within two years.”2
In September 2014, at a meeting with foreign executives
44 at the China International Fair for Investment and Trade
(CIFIT) in Xiamen, an annual event organized by China’s
Ministry of Commerce, Vice Premier Wang Yang declared
that China is not targeting foreign multinationals in the en-
