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6 White Paper on the Business Environment in China
lack of action on reform. observe, China’s government agencies began issuing “official
Much of the credit for that economic boom must go to Mr. regulations, statements, and editorials supporting reform goals
and hinting at the evolving internal discussions about reform
Hu’s predecessor Jiang Zemin and his Premier Zhu Rongji, who implementation. These releases covered an array of reform
had spearheaded far-reaching reforms that laid the foundations issues, including financial liberalization, the role of state-owned
of the decade’s growth. Under Mr. Hu’s administration, some enterprises (SOEs) in the economy, administrative licensing,
of those gains have been reversed, as the government again lent and tax reform” 1.
support to its state champions. According to the Wall Street
Journal, the number of state-owned enterprises as a share of Also in 2013, two major developments of significance oc-
the total continued to fall, dropping to 5 percent in 2011. But curred – widely perceived as the response of President Xi Jin-
with SOEs still dominant, their share of total output remained ping and his new generation of advisers and leaders to mitigate
relatively high at 26 percent21. the risks of a major economic slowdown:
A lending splurge in 2009-10 as China responded to the • In September 2013, the Shanghai government
global financial crisis also hurt its future growth prospects. The announced the launch of the China (Shanghai) Pilot
ratio of outstanding credit to GDP increased from around 116 Free Trade Zone (SFTZ), a pilot area for broader
percent in 2002 to 172 percent in 2011, according to China economic reforms in areas such as investment
Real Time [Wall Street Journal] estimates.21 approvals, trade facilitation, financial innovation, risk
management, and administrative licensing1.
Critics of [Mr. Hu and Mr. Wen] argue that reforms have
stalled on their watch, as they focused, “above all, on keeping • In November 2013, President Xi Jinping and his
China stable.” “Hu Jintao and Wen Jiabao’s generation could government laid out, at the Communist Party’s Third
have achieved a lot, but they did not,” said Yao Bo, a former Plenum of the CCP’s 18th Party Congress, a road
China Daily columnist. “They inherited good foundations, but map for the reform necessary to replace the current
they did not make a difference,” he added.22 economic model and reinvigorate China’s growth.
Known as the “Decisions,” the report at its core called
On November 2012, President Xi Jinping assumed leader- for market forces to assume “a decisive role in allocating
ship of China as a strong advocate for a new wave of economic resources”2. The Third Plenum served as a platform
reforms.
He inherited an economy that was already showing for the broader reform agenda, through both high-
a sharp deceleration, likely to sink to 6.8 percent in 2015 and level statements and a set of post-plenum documents
6.5 percent in 2016, according to a recent forecast outlined in that provided more detail on the direction of reform.
Newsweek magazine by Wang Tao, the chief China economist These documents included key indicators of priorities,
at UBS.2 including setting a “decisive” role for the market in the
economy, reforming China’s tax and finance regime,
After years of double-digit annual growth, this type of and improving foreign investment.1
slowdown – “growth that falls too far below 7 percent” could
be “dangerous” for China’s ruling Communist Party, states the Daniel Rosen, a principal at the Rhodium Group, a New
same Newsweek report, visualizing that “the prospect of young York consultancy, and author of a November 2014 report pub-
college graduates not being able to find jobs, or of poor farmers lished by the Asia Society on the prospects for economic reform
migrating to new urban areas only to be unable to find work, or in China, argues that “China’s development model is obsolete
of large firms going bankrupt, triggering layoffs, worries China’s and in need of urgent, not gradual, replacement.” 2
leadership.”2
In Mr. Rosen’s report, he notes that “to justify the risks [of
Mindful of this, China’s leadership had earlier already reform], President Xi quoted an impassioned plea for policy
begun an active discussion on the process of promoting and modernization by his predecessor Deng Xiaoping: the only way
implementing economic reform but the discussion was not to avoid a dead end – a blind alley – is to deepen reform and
accompanied by any actual meaningful implementation. As opening both at home and with the world.” 15
observed by the US-China Business Council Economic Report
Scorecard, the discussion process really “advanced in late In the same report, Mr. Rosen outlines the intriguing co-
2011, more than a year before China’s 2012-2013 leadership nundrum faced by China in the next several years, speculating
transition”, just a year before the ascension of Xi Jinping as that “if Beijing shifts direction along the lines it has announced,
China’s president and head of the Chinese Communist Party the behavior of Chinese companies, government agencies, and
(CCP) and Li Keqiang as premier and head of the powerful individual members of society is likely to change in remark-
State Council. The US-China Business Council noted able ways – and thereby create opportunities for the rest of the
that“Mr. Xi came to power as a strong proponent of economic world. Should the reform program stall, the effects will be just
reform, fueling speculation about its scope, scale, and speed” 1.
In 2013, the US-China Business Council continued to
22
lack of action on reform. observe, China’s government agencies began issuing “official
Much of the credit for that economic boom must go to Mr. regulations, statements, and editorials supporting reform goals
and hinting at the evolving internal discussions about reform
Hu’s predecessor Jiang Zemin and his Premier Zhu Rongji, who implementation. These releases covered an array of reform
had spearheaded far-reaching reforms that laid the foundations issues, including financial liberalization, the role of state-owned
of the decade’s growth. Under Mr. Hu’s administration, some enterprises (SOEs) in the economy, administrative licensing,
of those gains have been reversed, as the government again lent and tax reform” 1.
support to its state champions. According to the Wall Street
Journal, the number of state-owned enterprises as a share of Also in 2013, two major developments of significance oc-
the total continued to fall, dropping to 5 percent in 2011. But curred – widely perceived as the response of President Xi Jin-
with SOEs still dominant, their share of total output remained ping and his new generation of advisers and leaders to mitigate
relatively high at 26 percent21. the risks of a major economic slowdown:
A lending splurge in 2009-10 as China responded to the • In September 2013, the Shanghai government
global financial crisis also hurt its future growth prospects. The announced the launch of the China (Shanghai) Pilot
ratio of outstanding credit to GDP increased from around 116 Free Trade Zone (SFTZ), a pilot area for broader
percent in 2002 to 172 percent in 2011, according to China economic reforms in areas such as investment
Real Time [Wall Street Journal] estimates.21 approvals, trade facilitation, financial innovation, risk
management, and administrative licensing1.
Critics of [Mr. Hu and Mr. Wen] argue that reforms have
stalled on their watch, as they focused, “above all, on keeping • In November 2013, President Xi Jinping and his
China stable.” “Hu Jintao and Wen Jiabao’s generation could government laid out, at the Communist Party’s Third
have achieved a lot, but they did not,” said Yao Bo, a former Plenum of the CCP’s 18th Party Congress, a road
China Daily columnist. “They inherited good foundations, but map for the reform necessary to replace the current
they did not make a difference,” he added.22 economic model and reinvigorate China’s growth.
Known as the “Decisions,” the report at its core called
On November 2012, President Xi Jinping assumed leader- for market forces to assume “a decisive role in allocating
ship of China as a strong advocate for a new wave of economic resources”2. The Third Plenum served as a platform
reforms.
He inherited an economy that was already showing for the broader reform agenda, through both high-
a sharp deceleration, likely to sink to 6.8 percent in 2015 and level statements and a set of post-plenum documents
6.5 percent in 2016, according to a recent forecast outlined in that provided more detail on the direction of reform.
Newsweek magazine by Wang Tao, the chief China economist These documents included key indicators of priorities,
at UBS.2 including setting a “decisive” role for the market in the
economy, reforming China’s tax and finance regime,
After years of double-digit annual growth, this type of and improving foreign investment.1
slowdown – “growth that falls too far below 7 percent” could
be “dangerous” for China’s ruling Communist Party, states the Daniel Rosen, a principal at the Rhodium Group, a New
same Newsweek report, visualizing that “the prospect of young York consultancy, and author of a November 2014 report pub-
college graduates not being able to find jobs, or of poor farmers lished by the Asia Society on the prospects for economic reform
migrating to new urban areas only to be unable to find work, or in China, argues that “China’s development model is obsolete
of large firms going bankrupt, triggering layoffs, worries China’s and in need of urgent, not gradual, replacement.” 2
leadership.”2
In Mr. Rosen’s report, he notes that “to justify the risks [of
Mindful of this, China’s leadership had earlier already reform], President Xi quoted an impassioned plea for policy
begun an active discussion on the process of promoting and modernization by his predecessor Deng Xiaoping: the only way
implementing economic reform but the discussion was not to avoid a dead end – a blind alley – is to deepen reform and
accompanied by any actual meaningful implementation. As opening both at home and with the world.” 15
observed by the US-China Business Council Economic Report
Scorecard, the discussion process really “advanced in late In the same report, Mr. Rosen outlines the intriguing co-
2011, more than a year before China’s 2012-2013 leadership nundrum faced by China in the next several years, speculating
transition”, just a year before the ascension of Xi Jinping as that “if Beijing shifts direction along the lines it has announced,
China’s president and head of the Chinese Communist Party the behavior of Chinese companies, government agencies, and
(CCP) and Li Keqiang as premier and head of the powerful individual members of society is likely to change in remark-
State Council. The US-China Business Council noted able ways – and thereby create opportunities for the rest of the
that“Mr. Xi came to power as a strong proponent of economic world. Should the reform program stall, the effects will be just
reform, fueling speculation about its scope, scale, and speed” 1.
In 2013, the US-China Business Council continued to
22
