Page 12 - 2016_WhitePaper_web
P. 12
6 White Paper on the Business Environment in China
1.1 The New Normal
This year, when referring to the Chinese economy, tion of the currency. When the government set out to arrest a
the catch phrase among China’s government officials – stock-market slide in June, it first called for limiting the borrow-
and the global media – has undoubtedly been “the new normal”. ing of money to buy shares, then confusingly reversed itself to
Let’s take a look at what exactly does this mean and what are the encourage more borrowing. The results were dramatic uneven
implications for doing business in China going forward. swings in the stock market and currency, rattling nerves and
causing concern among global investors. 3
It is clear by now that China’s economy, in the midst of
transitioning from its breakneck manufacturing and produc- Yet Xinhua reports that at the recent G20 summit in An-
tion-fueled growth model to a more services-oriented and talya, Turkey, President Xi Jinping said that despite the recent
knowledge-based model, is slowing down in the years to come, slowdown, China still contributed 30 percent of world eco-
although economists may disagree about how much and for how nomic growth. The President remains bullish about China’s
long. In 2014, the country’s GDP growth rate fell to 7.4 percent, economic prospects, saying that it was predicted that the econ-
the lowest in almost a quarter century, and many expected that omy would grow around 7 percent this year, and will continue
figure to drop further in 2015. According to China’s National contributing as high as about one third of global growth. The re-
Bureau of Statistics, the country’s GDP growth rate was at 6.9 port added that “China’s confidence comes from its determina-
percent as of the third quarter of 2015, with the growth in the tion and actions to comprehensively deepen reform, strengthen
services sector offsetting the stagnation in manufacturing, keep- economic endogenous dynamism and policy guidance to build
ing Premier Li Keqiang’s growth target within reach and exceed- a ‘moderately prosperous society’ and double its 2010 GDP and
ing economists’ lower expectations of 6.8 percent. 1 per capita income of both urban and rural residents by 2020.” 4
Both President Xi Jinping and Premier Li Keqiang have Endemic in the transition journey of China’s “new normal”
been quoted as calling this new, early stage of China’s develop- is the urgent need to pursue the reform agenda initiated by Pres-
ment as “the new normal” in describing the economy’s crucial ident Xi Jinping’s administration nearly three years ago - a fact
rebalancing, one in which China is undergoing the process of which was reiterated by China’s senior leadership earlier this year.
diversifying its economy, pursuing a sustainable level of growth
and striving to distribute economic benefits more evenly. 2 In speaking at the opening of the National People’s Congress
last March 2015, Premier Li Keqiang stressed the need to put
So, what is “the new normal” in China? The first is a lower the economy on a more sustainable footing after three decades
rate of economic growth – this is plainly obvious. The second of breakneck growth and priorities included pushing ahead
is a focus on a new model of growth that places less emphasis with reforms of the giant state-owned enterprises that continue
on investment and more on consumption, especially domestic to dominate the economy and liberalizing the banking system
consumption. and financial markets. A key pillar of the reform agenda is tack-
ling overcapacity in polluting heavy industries and moving its
Transition to this new model requires commitment to the manufacturing factories up the global value chain. Premier Li
current administration’s ongoing structural reforms and long- said: “We will implement the ‘Made in China 2025’ strategy,
term policies. The Chinese government has done a tremendous seek innovation-driven development, apply smart technology,
job, in only 30 years, in crafting an institutional environment strengthen foundations, pursue green development and redou-
that is generally conducive to business, including foreign busi- ble our efforts to upgrade China from a manufacturer of quan-
ness. But in order for China to narrow the gap with more mature tity to one of quality.” 5
global economies and in order to better serve as a sustainable
engine of future, long-term economic growth, further improve- The Premier promised that the administration’s anti-corrup-
ment of that environment is not only necessary but vital. tion campaign would continue unabated. Li said: “Our tough
stance on corruption is here to stay. Our tolerance for corrup-
Of course the journey ahead is marked with daunting chal- tion is zero, and anyone guilty of corruption will be dealt with
lenges. Events this past summer of 2015 bore witness to the seriously.” 5
difficulties faced by China’s leadership in reorienting the coun-
try’s massive economy. The central bank, seeking to invigorate Li also promised a greater role for private business in
borrowing and spending, cut benchmark interest rates for the economy, which he said would be further opened up by
a fifth time in 10 months and reduced the amount of money halving the number of industries in which foreign investment
banks need to hold in reserve. It also issued a surprise devalua- is restricted. A draft foreign investment catalog issued in
12
1.1 The New Normal
This year, when referring to the Chinese economy, tion of the currency. When the government set out to arrest a
the catch phrase among China’s government officials – stock-market slide in June, it first called for limiting the borrow-
and the global media – has undoubtedly been “the new normal”. ing of money to buy shares, then confusingly reversed itself to
Let’s take a look at what exactly does this mean and what are the encourage more borrowing. The results were dramatic uneven
implications for doing business in China going forward. swings in the stock market and currency, rattling nerves and
causing concern among global investors. 3
It is clear by now that China’s economy, in the midst of
transitioning from its breakneck manufacturing and produc- Yet Xinhua reports that at the recent G20 summit in An-
tion-fueled growth model to a more services-oriented and talya, Turkey, President Xi Jinping said that despite the recent
knowledge-based model, is slowing down in the years to come, slowdown, China still contributed 30 percent of world eco-
although economists may disagree about how much and for how nomic growth. The President remains bullish about China’s
long. In 2014, the country’s GDP growth rate fell to 7.4 percent, economic prospects, saying that it was predicted that the econ-
the lowest in almost a quarter century, and many expected that omy would grow around 7 percent this year, and will continue
figure to drop further in 2015. According to China’s National contributing as high as about one third of global growth. The re-
Bureau of Statistics, the country’s GDP growth rate was at 6.9 port added that “China’s confidence comes from its determina-
percent as of the third quarter of 2015, with the growth in the tion and actions to comprehensively deepen reform, strengthen
services sector offsetting the stagnation in manufacturing, keep- economic endogenous dynamism and policy guidance to build
ing Premier Li Keqiang’s growth target within reach and exceed- a ‘moderately prosperous society’ and double its 2010 GDP and
ing economists’ lower expectations of 6.8 percent. 1 per capita income of both urban and rural residents by 2020.” 4
Both President Xi Jinping and Premier Li Keqiang have Endemic in the transition journey of China’s “new normal”
been quoted as calling this new, early stage of China’s develop- is the urgent need to pursue the reform agenda initiated by Pres-
ment as “the new normal” in describing the economy’s crucial ident Xi Jinping’s administration nearly three years ago - a fact
rebalancing, one in which China is undergoing the process of which was reiterated by China’s senior leadership earlier this year.
diversifying its economy, pursuing a sustainable level of growth
and striving to distribute economic benefits more evenly. 2 In speaking at the opening of the National People’s Congress
last March 2015, Premier Li Keqiang stressed the need to put
So, what is “the new normal” in China? The first is a lower the economy on a more sustainable footing after three decades
rate of economic growth – this is plainly obvious. The second of breakneck growth and priorities included pushing ahead
is a focus on a new model of growth that places less emphasis with reforms of the giant state-owned enterprises that continue
on investment and more on consumption, especially domestic to dominate the economy and liberalizing the banking system
consumption. and financial markets. A key pillar of the reform agenda is tack-
ling overcapacity in polluting heavy industries and moving its
Transition to this new model requires commitment to the manufacturing factories up the global value chain. Premier Li
current administration’s ongoing structural reforms and long- said: “We will implement the ‘Made in China 2025’ strategy,
term policies. The Chinese government has done a tremendous seek innovation-driven development, apply smart technology,
job, in only 30 years, in crafting an institutional environment strengthen foundations, pursue green development and redou-
that is generally conducive to business, including foreign busi- ble our efforts to upgrade China from a manufacturer of quan-
ness. But in order for China to narrow the gap with more mature tity to one of quality.” 5
global economies and in order to better serve as a sustainable
engine of future, long-term economic growth, further improve- The Premier promised that the administration’s anti-corrup-
ment of that environment is not only necessary but vital. tion campaign would continue unabated. Li said: “Our tough
stance on corruption is here to stay. Our tolerance for corrup-
Of course the journey ahead is marked with daunting chal- tion is zero, and anyone guilty of corruption will be dealt with
lenges. Events this past summer of 2015 bore witness to the seriously.” 5
difficulties faced by China’s leadership in reorienting the coun-
try’s massive economy. The central bank, seeking to invigorate Li also promised a greater role for private business in
borrowing and spending, cut benchmark interest rates for the economy, which he said would be further opened up by
a fifth time in 10 months and reduced the amount of money halving the number of industries in which foreign investment
banks need to hold in reserve. It also issued a surprise devalua- is restricted. A draft foreign investment catalog issued in
12
