Page 70 - 2020 White Paper on the Business Environment in China
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0 White Paper on the Business Environment in China
redundant capacity, increase business efficiency legislation to formalize China’s progress, equalize
and improve profitability are well underway. business platforms, protect property rights,
Approved on 21 August 201910 , Shenzhen has reduce administrative burdens and improve
been chosen as a pilot area to turn more SOEs into market access. Based on the regulations, the State
national leading enterprises. In the reform, the city Council will implement an annual national business
Spltarantsetgoyefnocroaubraegtetemr bouresitnheasns8e5n%viorof sntmateenctapital environment evaluation, with pilot evaluation of
Tthoe scecoonnd gcoael inn Sthreanztheen’sinnewmdesaigjnoatironaasraenaatisonoal dfeimnonfsrtraatisontarrueacisttoucrreeateaanmoddern 22 cities completed in 201912 . As a pilot city in the
ipnduusbtriallisctruuctutriel.iIttsiueggses,tsathnatdtheicnity wcilel tarkteaaipnroacatirveeroalesin roemfovfiinng readntapceeandaimnpdroving the evaluation, Shenzhen has since launched a 20-
business environment. We note that remarkable breakthroughs are already in the pipeline, especially in terms of
sstattre-aowtneedgeincterperisme (SeOEr)greifonrmganidnindcluusivsetfirnainecisng. foIrtreainl eccolnuomdicedesmalnod.gistics item improvement list. For example, the Shenzhen
Afamcoirleiteiqeusitasblue cmharkaetsplaaceirfoprocormtspetaitinvedbussieneaspseosrts, public government has launched an operational guideline
Ptirloat anreasipn SoOErrteafortmion, utilities, food supply, housing and on property rights and expanded credit guarantee
iSpnOcuEresabwseilllbibcuesiansneesimscpeofufritcarieninttcpyyaar.tnodfiCmhpinroav’es high-quality growth, and reforms to restructure redundant capacity, services for small businesses13 as it strives to stay
profitability are well underway. Approved on 21 August 201912,
Shenzhen has been chosen as a pilot area to turn more SOEs into national leading enterprises. In the reform, the
step ahead of the national standard in terms of
acity plans to encourage more than 85% of state capital to concentrate in major areas of infrastructure and
psuucbhlicaFsuitaigliirtpieo1srt,s2aannddiSnseOcaeprEtoaritnrs,aepresuabtslriocuftfricannatsnupcoerrtaianntdiogsnt,rhuattieeligtliicepse,smfoeotrgdoinsugbpinpodlyu,oshtosriuetssi.ntIgthianencdluopduevbsleilcorgsieasctiulclrsitfya.cilities business environment.
efficiency of the economy
Fig 13 SOE restructuring helps to boost the overall efficiency of the economy
Financing China’s Real Economic
14 Return on Asset (ROA) Demand
12
10 Massive credit booms are no longer a feasible
8 solution for a slowing economy
6
%
4 China’s credit growth surged in the past decade. RMB t x
2 In 3Q2019, the total credit leverage exceeded
0
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 250% of GDP, and the burden has weighed on the
State-owned enterprise Private-owned enterprise nriagethitocsnoaanl ndsteaoxnpdmaanrddyeind tceraremdsist ogfumbaurasoninteeresesseenrvaviicrnoensdmfoernstmm. alloburseinesdsese15faas iut sltrtivses too sctacy ausrte.p aThehadiosf the
Source: Wind
ehThnaetveeerpfmSfroaiosrrtekuises,tersvixacxpltueeoec:tseeexWdvcetenoeiedcnuninltdtgeivrRpaMrtiesBes1se0vwe0irlbal.hlIlatavwregileal saSslOseoEtssc,ereoxacf etweehdaicinnhugomRnbMeeBtro1ot0fw0coibtwy,-aillelnvbdeetlcwcooommgeipatanontpiee5ns0tte0hrapgtrlioasbreeagldroeduipcsawteidlFMl iraansalassitnveoicocirnelgde(itICdCbhoOoitnmoasR’as)raernne1oa4llointneghcecorarnaetofemaasssiibucliendgseoggmluetaiiosnnntdfcosrraedslmoiwmienginenctoiansolhmycinagpitaaglg-oreugtpautet
taossinevtseTsothfinRgeMinB4set.r5fatftewoghiirclentdeewibsitnwdiuellsrtxerimepsa.eiTnhcbeetpleoilwodt6r5ef%toroomf aesxcspueetcslt.stTtihhveaattointta2el 0re2vs2e,neSuheveoenfztrhheaensleSSOlOEasEsrwigisllaehlasvoeetxopteacl teCadnhrdinetaht’esucbrurerddnietngtrhooawstwhcesaiugrhgpeedditoinantthlh.eepeacsotndoemcyadaes.mInor3eQa2n0d1m9,otrheedteoftaaullctsreodcitculerv.eTrhaisgealesxocleeeddteoda2n5i0n%creoafsGinDgP,
tSo OreaEchsR,MBo60f0bwwhihleitcothal proofint weill retaoch RMtwB10o0b,wmaiklilng tbheemcsoomme ofethe tmoospt pro5fita0b0le SOEs in incremental capital-output ratio (ICOR)16 that suggests diminishing aggregate return to capital. It suggests that
China. Competitive companies also should seek overall listing or have their core assets listed. gmraoswstihveFdeinisvgpeistetm1sieg3nntifbicoDaonmitlsmyahrieginhneoirlscoonhsgteisnr. agpolricey otputiornnasothfey creasuplt iintmaalrgiinnallvy esmsatllmer beoonstts toaesconomic
global enterprises, six to seven enterprises will have
OOanpse2rs3ateOiocnttaoslbizeeirnx2g0tch1ee9,netahtedioSnitanaltgeguCidoReulnMinceilsBan1no0un0cebd t,heapnasdsagtewof o“Regguilaatnionts eonnoptteimrizpingrtihseebusiness the total debt burden increasesFig 14 Diminishing return of capital investment as the total debt burden increases
epgnrorvtioreocntumprpeonpste”1r3twy, ariniglhilmtsp,horeratdauvncteesaedtmmofinleaigstrisraklatitevioetnbtuvordfaoernlmsuaalenizdeieCmhpxinrocav’ees pmeraodrgkreeintssa,cgecqeusRsa.lMiBzeasBbeuds1ionn0est0hsepbrlea.gtfuolramtiso,ns,
2tIht2ecSwittiaetiselclCoomaupnllcseitloewdililncim2rp0el1e9am14et.neAtsaanapainlnontuucailtmnyaintibothneeael rbvaulsuoiantefisosnc,eiSntvhyieron-nzlhmeeenvnhteaesvlaslicunacoetiolmanu, nwpcithhaepdnialoi2te0ev-siatleumation of
itmhpraovtemeantrleist. Fdor eexadmipclea, tthee Sdhenzthoen goivnervnmeesntthians lgauncihned asn otprearattieongaligcuidenlineewon property 7 260 % of GDP
6 240
industries. The pilot reform expects that in 2022, 5 220
4 200
Shenzhen SOEs will have total assets of RMB4.5t 3 180
2 160
12 ccnews.people.com.cn/n1/2019/0821/c141677-31308825.html 1 140
120
1w3 whwiwle.govd.cen/bzhtenwgceil/lconrteenmt/2a0i1n9-10b/2e3l/ocownten6t_55%4439o63f.htamssets. The 100
1t4owtwawl.groevv.cne/nxinuweeno/2f01t8h-0e8s/2e5/ScoOnteEnst_i5s31a65ls10o.hetmxpected to reach
RMB600b while total profit will reach RMB100b, 0 80
making them some of the most profitable SOEs in
China. Competitive companies also should seek 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
overall listing or have their core assets listed. ICOR (5YMA) Credit leverage (RHS)
Operationalizing the National Guidelines Source: Wind
Source: Wind
However, concern remains among policymakers in terms of actual lending to the private sector, particularly
small businesses with real economic demand. The situation has deteriorated amid the crackdown on shadow
bankingI,tfrosmuwhgicgh semsaltl bsusitnhessaestwimth liattlescsolilavteeral ionr cvredeitshitsmtoryewenretabble too foindmfinsancaingr.e
Fign15oCrlaockdnowgn oen srhadaowpbaonkinlgicinsytruomepntstaimoidnthe PaBosC’stchonceeryn onrCehinsa’us filntanciinal rismk arginally
sm4 aller boosts to economicTotal social financing growth despite 15
On 23 October 2019, the State Council announced significantly higher costs. 14
3
the passage of “Regulations on optimizing the
13 %YoY
business environment”11 , an important set of 2
10. ccnews.people.com.cn/n1/2019/0821/c141677-31308825. 12
html
1 12. www.gov.cn/xinwen/2018-08/25/content_5316510.htm 11
11. www.gov.cn/zhengce/content/2019-10/23/content_5443963. 13.www.financialnews.com.cn/cj/zczx/201905/t20190514_159846.html
0 14. ICOR refers to the capital investment required to generate an 10
htm ad-1ditional unit of national output 9
Aug-16 Feb-17 Aug-17 Feb-18 Aug-18 Feb-19 Aug-19
Others
RMB loan Shadow banking instruments Total TSF (RHS)
70 15 www.financialnews.com.cn/cj/zczx/201905/t20190514_159846.html
16 ICOR refers to the capital investment required to generate an additional unit of national
redundant capacity, increase business efficiency legislation to formalize China’s progress, equalize
and improve profitability are well underway. business platforms, protect property rights,
Approved on 21 August 201910 , Shenzhen has reduce administrative burdens and improve
been chosen as a pilot area to turn more SOEs into market access. Based on the regulations, the State
national leading enterprises. In the reform, the city Council will implement an annual national business
Spltarantsetgoyefnocroaubraegtetemr bouresitnheasns8e5n%viorof sntmateenctapital environment evaluation, with pilot evaluation of
Tthoe scecoonnd gcoael inn Sthreanztheen’sinnewmdesaigjnoatironaasraenaatisonoal dfeimnonfsrtraatisontarrueacisttoucrreeateaanmoddern 22 cities completed in 201912 . As a pilot city in the
ipnduusbtriallisctruuctutriel.iIttsiueggses,tsathnatdtheicnity wcilel tarkteaaipnroacatirveeroalesin roemfovfiinng readntapceeandaimnpdroving the evaluation, Shenzhen has since launched a 20-
business environment. We note that remarkable breakthroughs are already in the pipeline, especially in terms of
sstattre-aowtneedgeincterperisme (SeOEr)greifonrmganidnindcluusivsetfirnainecisng. foIrtreainl eccolnuomdicedesmalnod.gistics item improvement list. For example, the Shenzhen
Afamcoirleiteiqeusitasblue cmharkaetsplaaceirfoprocormtspetaitinvedbussieneaspseosrts, public government has launched an operational guideline
Ptirloat anreasipn SoOErrteafortmion, utilities, food supply, housing and on property rights and expanded credit guarantee
iSpnOcuEresabwseilllbibcuesiansneesimscpeofufritcarieninttcpyyaar.tnodfiCmhpinroav’es high-quality growth, and reforms to restructure redundant capacity, services for small businesses13 as it strives to stay
profitability are well underway. Approved on 21 August 201912,
Shenzhen has been chosen as a pilot area to turn more SOEs into national leading enterprises. In the reform, the
step ahead of the national standard in terms of
acity plans to encourage more than 85% of state capital to concentrate in major areas of infrastructure and
psuucbhlicaFsuitaigliirtpieo1srt,s2aannddiSnseOcaeprEtoaritnrs,aepresuabtslriocuftfricannatsnupcoerrtaianntdiogsnt,rhuattieeligtliicepse,smfoeotrgdoinsugbpinpodlyu,oshtosriuetssi.ntIgthianencdluopduevbsleilcorgsieasctiulclrsitfya.cilities business environment.
efficiency of the economy
Fig 13 SOE restructuring helps to boost the overall efficiency of the economy
Financing China’s Real Economic
14 Return on Asset (ROA) Demand
12
10 Massive credit booms are no longer a feasible
8 solution for a slowing economy
6
%
4 China’s credit growth surged in the past decade. RMB t x
2 In 3Q2019, the total credit leverage exceeded
0
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 250% of GDP, and the burden has weighed on the
State-owned enterprise Private-owned enterprise nriagethitocsnoaanl ndsteaoxnpdmaanrddyeind tceraremdsist ogfumbaurasoninteeresesseenrvaviicrnoensdmfoernstmm. alloburseinesdsese15faas iut sltrtivses too sctacy ausrte.p aThehadiosf the
Source: Wind
ehThnaetveeerpfmSfroaiosrrtekuises,tersvixacxpltueeoec:tseeexWdvcetenoeiedcnuninltdtgeivrRpaMrtiesBes1se0vwe0irlbal.hlIlatavwregileal saSslOseoEtssc,ereoxacf etweehdaicinnhugomRnbMeeBtro1ot0fw0coibtwy,-aillelnvbdeetlcwcooommgeipatanontpiee5ns0tte0hrapgtrlioasbreeagldroeduipcsawteidlFMl iraansalassitnveoicocirnelgde(itICdCbhoOoitnmoasR’as)raernne1oa4llointneghcecorarnaetofemaasssiibucliendgseoggmluetaiiosnnntdfcosrraedslmoiwmienginenctoiansolhmycinagpitaaglg-oreugtpautet
taossinevtseTsothfinRgeMinB4set.r5fatftewoghiirclentdeewibsitnwdiuellsrtxerimepsa.eiTnhcbeetpleoilwodt6r5ef%toroomf aesxcspueetcslt.stTtihhveaattointta2el 0re2vs2e,neSuheveoenfztrhheaensleSSOlOEasEsrwigisllaehlasvoeetxopteacl teCadnhrdinetaht’esucbrurerddnietngtrhooawstwhcesaiugrhgpeedditoinantthlh.eepeacsotndoemcyadaes.mInor3eQa2n0d1m9,otrheedteoftaaullctsreodcitculerv.eTrhaisgealesxocleeeddteoda2n5i0n%creoafsGinDgP,
tSo OreaEchsR,MBo60f0bwwhihleitcothal proofint weill retaoch RMtwB10o0b,wmaiklilng tbheemcsoomme ofethe tmoospt pro5fita0b0le SOEs in incremental capital-output ratio (ICOR)16 that suggests diminishing aggregate return to capital. It suggests that
China. Competitive companies also should seek overall listing or have their core assets listed. gmraoswstihveFdeinisvgpeistetm1sieg3nntifbicoDaonmitlsmyahrieginhneoirlscoonhsgteisnr. agpolricey otputiornnasothfey creasuplt iintmaalrgiinnallvy esmsatllmer beoonstts toaesconomic
global enterprises, six to seven enterprises will have
OOanpse2rs3ateOiocnttaoslbizeeirnx2g0tch1ee9,netahtedioSnitanaltgeguCidoReulnMinceilsBan1no0un0cebd t,heapnasdsagtewof o“Regguilaatnionts eonnoptteimrizpingrtihseebusiness the total debt burden increasesFig 14 Diminishing return of capital investment as the total debt burden increases
epgnrorvtioreocntumprpeonpste”1r3twy, ariniglhilmtsp,horeratdauvncteesaedtmmofinleaigstrisraklatitevioetnbtuvordfaoernlmsuaalenizdeieCmhpxinrocav’ees pmeraodrgkreeintssa,cgecqeusRsa.lMiBzeasBbeuds1ionn0est0hsepbrlea.gtfuolramtiso,ns,
2tIht2ecSwittiaetiselclCoomaupnllcseitloewdililncim2rp0el1e9am14et.neAtsaanapainlnontuucailtmnyaintibothneeael rbvaulsuoiantefisosnc,eiSntvhyieron-nzlhmeeenvnhteaesvlaslicunacoetiolmanu, nwpcithhaepdnialoi2te0ev-siatleumation of
itmhpraovtemeantrleist. Fdor eexadmipclea, tthee Sdhenzthoen goivnervnmeesntthians lgauncihned asn otprearattieongaligcuidenlineewon property 7 260 % of GDP
6 240
industries. The pilot reform expects that in 2022, 5 220
4 200
Shenzhen SOEs will have total assets of RMB4.5t 3 180
2 160
12 ccnews.people.com.cn/n1/2019/0821/c141677-31308825.html 1 140
120
1w3 whwiwle.govd.cen/bzhtenwgceil/lconrteenmt/2a0i1n9-10b/2e3l/ocownten6t_55%4439o63f.htamssets. The 100
1t4owtwawl.groevv.cne/nxinuweeno/2f01t8h-0e8s/2e5/ScoOnteEnst_i5s31a65ls10o.hetmxpected to reach
RMB600b while total profit will reach RMB100b, 0 80
making them some of the most profitable SOEs in
China. Competitive companies also should seek 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
overall listing or have their core assets listed. ICOR (5YMA) Credit leverage (RHS)
Operationalizing the National Guidelines Source: Wind
Source: Wind
However, concern remains among policymakers in terms of actual lending to the private sector, particularly
small businesses with real economic demand. The situation has deteriorated amid the crackdown on shadow
bankingI,tfrosmuwhgicgh semsaltl bsusitnhessaestwimth liattlescsolilavteeral ionr cvredeitshitsmtoryewenretabble too foindmfinsancaingr.e
Fign15oCrlaockdnowgn oen srhadaowpbaonkinlgicinsytruomepntstaimoidnthe PaBosC’stchonceeryn onrCehinsa’us filntanciinal rismk arginally
sm4 aller boosts to economicTotal social financing growth despite 15
On 23 October 2019, the State Council announced significantly higher costs. 14
3
the passage of “Regulations on optimizing the
13 %YoY
business environment”11 , an important set of 2
10. ccnews.people.com.cn/n1/2019/0821/c141677-31308825. 12
html
1 12. www.gov.cn/xinwen/2018-08/25/content_5316510.htm 11
11. www.gov.cn/zhengce/content/2019-10/23/content_5443963. 13.www.financialnews.com.cn/cj/zczx/201905/t20190514_159846.html
0 14. ICOR refers to the capital investment required to generate an 10
htm ad-1ditional unit of national output 9
Aug-16 Feb-17 Aug-17 Feb-18 Aug-18 Feb-19 Aug-19
Others
RMB loan Shadow banking instruments Total TSF (RHS)
70 15 www.financialnews.com.cn/cj/zczx/201905/t20190514_159846.html
16 ICOR refers to the capital investment required to generate an additional unit of national
