Page 26 - 2018 White Paper on the Business Environment in China
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8 White Paper on the Business Environment in China
China remains an important market for American debt, and credit will not be popular. Local governments
companies, but the opportunities of the market continue may have to do without some of the easy credit to
to come with significant challenges. From the overall finance local projects. At the same time, the government
U.S.-China bilateral relationship, to China’s domestic needs to be wary of encouraging debt accumulation
policies, to the obligations American companies have by local governments. The government needs to
in complying with both Chinese and U.S. law while provide more opportunities for these municipalities
operating overseas, those challenges can be daunting. to raise money by directly issuing their own bonds
Companies need to have sure footing as they consider such as special purpose bonds for infrastructure
their options for expansion in the market. Zarit says that development. Also, there are far better ways of dealing
both Beijing and Washington need “to look at what has with underperforming state-owned enterprises (SOE)
been going on and what we can do in a positive way to than blanketing them with unsustainable debt. It’s time
level that playing field and improve the communication for them to go on a strict budget. China needs to merge
with the Chinese,” Zarit said. “But we want to make sure these enterprises and open them up for international
we analyze it three, four, five, six steps down the road, investment or face stifling future problems.
what’s going to happen, with whatever measures we
take and to be sure that is not going to adversely affect The Chinese government needs to drop its annual
our workers” (Mullen and Rivers). gross domestic product target because it is increasingly
costly for China to run after a headline growth rate at
Moving Forward the cost of delaying much-needed structural reforms.
Although the move could slow down short-term growth
President Xi Jinping should have more time to it could promote longer-term sustainable growth. A 6.5
concentrate on China’s economic affairs, especially the percent growth target is still attainable, but will continue
issues of financials risk, after solidifying his authority to cost more every year. Debate has continued for years
after the 19th National Congress. This focus is long over whether China should keep its annual growth
overdue. A financial crisis could seriously derail many of target. Many economists have said the yearly practice of
his loftier goals. Since launching the stimulus package setting a target is a legacy from the era of the planned
during the 2008-2009 global financial crises, credit has economy and should be scrapped. Others have argued
grown to a level of being uncomfortable to say the least. in favor of maintaining targets, pointing out that China
The Bank of International Settlements (BIS) claims China’s must maintain annual average growth of 6.5 percent
overall total debt to GDP rose to 257 percent in 2016 through to 2020 if it is to achieve its strategic goal of
with most of this debt concentrated in the corporate doubling per capita GDP over 10 years starting in 2010.
sector. This is up from 141.3 percent at the end of 2008 Under present practice, the premier reads out a yearly
during the height of the financial crisis. The average growth rate in early March that receives rubber-stamp
ratio at the end of 2016 for developed economies was parliamentary approval. The 2017 rate was set at about
264.5 percent and 184.3 percent for emerging nations 6.5 percent, and China’s actual economic growth in the
including China. China needs to take a long hard look at first half was 6.9 per cent. However, South China Morning
the global history books. Staggering debt in both the U.S. Post notes that the country’s economic momentum
and Europe in the early 2000s precipitated recessions came at a cost: rising debt and growing financial risk.
in the latter part of the decade. Japan escaped the
same fate of a financial crisis after binging on debt in China should raise its benchmark interest rates
the 1980s, but had to endure a long period of economic immediately in order to send a clear signal to financial
stagnation. China needs to heed the warnings of recent markets, research groups, and global rating organizations
history, as well as current international observers, or risk that it means business when it comes to straightening
facing its own variation of these consequences. out its debt problems. The domestic benchmarks one-
year deposit and lending rates have been untouched
Chinese officials began to lay the foundation in since they were lowered to 1.5 percent and 4.35 percent
2017 after the December 2016 Central Economic Work in 2015. 2017 saw an increase on various money market
Conference identified “Tackling financial risks” as a top rates. Slowly raising these rates over the next few years
priority. Regulators began to take the necessary steps will allow China to follow anticipated similar interest
toward controlling the more shadowy aspects of the rates hikes in more developed economies.
country’s financial sector. Reigning in financial leverage,
26
China remains an important market for American debt, and credit will not be popular. Local governments
companies, but the opportunities of the market continue may have to do without some of the easy credit to
to come with significant challenges. From the overall finance local projects. At the same time, the government
U.S.-China bilateral relationship, to China’s domestic needs to be wary of encouraging debt accumulation
policies, to the obligations American companies have by local governments. The government needs to
in complying with both Chinese and U.S. law while provide more opportunities for these municipalities
operating overseas, those challenges can be daunting. to raise money by directly issuing their own bonds
Companies need to have sure footing as they consider such as special purpose bonds for infrastructure
their options for expansion in the market. Zarit says that development. Also, there are far better ways of dealing
both Beijing and Washington need “to look at what has with underperforming state-owned enterprises (SOE)
been going on and what we can do in a positive way to than blanketing them with unsustainable debt. It’s time
level that playing field and improve the communication for them to go on a strict budget. China needs to merge
with the Chinese,” Zarit said. “But we want to make sure these enterprises and open them up for international
we analyze it three, four, five, six steps down the road, investment or face stifling future problems.
what’s going to happen, with whatever measures we
take and to be sure that is not going to adversely affect The Chinese government needs to drop its annual
our workers” (Mullen and Rivers). gross domestic product target because it is increasingly
costly for China to run after a headline growth rate at
Moving Forward the cost of delaying much-needed structural reforms.
Although the move could slow down short-term growth
President Xi Jinping should have more time to it could promote longer-term sustainable growth. A 6.5
concentrate on China’s economic affairs, especially the percent growth target is still attainable, but will continue
issues of financials risk, after solidifying his authority to cost more every year. Debate has continued for years
after the 19th National Congress. This focus is long over whether China should keep its annual growth
overdue. A financial crisis could seriously derail many of target. Many economists have said the yearly practice of
his loftier goals. Since launching the stimulus package setting a target is a legacy from the era of the planned
during the 2008-2009 global financial crises, credit has economy and should be scrapped. Others have argued
grown to a level of being uncomfortable to say the least. in favor of maintaining targets, pointing out that China
The Bank of International Settlements (BIS) claims China’s must maintain annual average growth of 6.5 percent
overall total debt to GDP rose to 257 percent in 2016 through to 2020 if it is to achieve its strategic goal of
with most of this debt concentrated in the corporate doubling per capita GDP over 10 years starting in 2010.
sector. This is up from 141.3 percent at the end of 2008 Under present practice, the premier reads out a yearly
during the height of the financial crisis. The average growth rate in early March that receives rubber-stamp
ratio at the end of 2016 for developed economies was parliamentary approval. The 2017 rate was set at about
264.5 percent and 184.3 percent for emerging nations 6.5 percent, and China’s actual economic growth in the
including China. China needs to take a long hard look at first half was 6.9 per cent. However, South China Morning
the global history books. Staggering debt in both the U.S. Post notes that the country’s economic momentum
and Europe in the early 2000s precipitated recessions came at a cost: rising debt and growing financial risk.
in the latter part of the decade. Japan escaped the
same fate of a financial crisis after binging on debt in China should raise its benchmark interest rates
the 1980s, but had to endure a long period of economic immediately in order to send a clear signal to financial
stagnation. China needs to heed the warnings of recent markets, research groups, and global rating organizations
history, as well as current international observers, or risk that it means business when it comes to straightening
facing its own variation of these consequences. out its debt problems. The domestic benchmarks one-
year deposit and lending rates have been untouched
Chinese officials began to lay the foundation in since they were lowered to 1.5 percent and 4.35 percent
2017 after the December 2016 Central Economic Work in 2015. 2017 saw an increase on various money market
Conference identified “Tackling financial risks” as a top rates. Slowly raising these rates over the next few years
priority. Regulators began to take the necessary steps will allow China to follow anticipated similar interest
toward controlling the more shadowy aspects of the rates hikes in more developed economies.
country’s financial sector. Reigning in financial leverage,
26
