At the Highest Level
As China’s top leaders prepare to discuss major policies on the country’s reform agenda during the upcoming plenary session of the 18th Central Committee in November, the rest of the world is keeping a close eye on Xi Jinping for any clues as to the policy direction of China’s new leadership.
|The China Analyst - September 2013|
China’s top leaders are well aware of the problems facing the world’s second-largest economy and followers are cautiously optimistic that President Xi Jinping and company will push through long anticipated reforms needed to ensure China continues on its long-term growth trajectory.
Some of the new (old) ideas China’s new leadership are floating around to manage imbalances throughout Chinese society include: privatising rural land to boost rural incomes and encourage migration to cities; refining the “One Child” policy to ensure the country has an adequate labour supply to offset a rapidly ageing population; and reforming the hukou household registration system to give migrant workers and their children equal access to urban facilities.
From an economic perspective, China’s new leaders must continue to stabilise the economy to keep employment high while avoiding a surge in housing prices and inflation that could undermine reforms needed to overhaul the country’s investment and export-oriented growth model. Environmental protection, food safety and public health are high on the young administration’s agenda as a richer, larger and healthier middle class in China would not only help to stimulate domestic consumption but also demand more from the future.
The changes taking place in China are worthy of their own story. One of the major issues to watch will be the success (or failure) of Chinese and other emerging-country firms in cracking into developed markets. The fruits of globalisation will no longer largely accrue to rich-world businesses as emerging-market products and services win consumers in the West. In the coming years, Chinese car manufacturers will continue their efforts to break into European markets, while Chinese real estate developers, construction and Internet firms look to diversify their asset portfolios into more stable but still revenue-generating economies.
Against this backdrop, manufacturing will be undergoing a revolution. Rising Chinese wages will prompt some domestic and foreign-owned factories to look for more cost-competitive locations - in some instances back home, but more often to places such as Bangladesh or Mexico. Others will have to reinvent themselves.
The stakes are equally high for resource-endowed countries such as Australia as their economies remain heavily dependent on China, with most maintaining a relatively long-term bullish view about China’s future demand for commodities. China’s gradual shift from heavy infrastructure construction to a more domestic consumption-oriented growth model is understandably changing the strategic planning of global miners.
President Xi’s number two, Li Keqiang, advocates further urbanisation, which could put more money in the pockets of China’s migrants to spend on cars, televisions, appliances and real estate to fulfil their aspirations of joining China’s middle-class ranks.
Put these themes together, and it is clear that the rest of 2013 and 2014 is going to be a period of great change for companies in many sectors. But in that change lies opportunity, and the better the businesses’ knowledge of the environment in which they will be operating, the more likely they are to succeed.
In this edition of The China Analyst, we outline the implications of China’s growing footprint in the developed world as the country enters a new era in its on-going transformation.
I trust our readers will enjoy this edition of The China Analyst and, as always, we welcome your feedback.
Kobus van der Wath
Founder & Group Managing Director
The Beijing Axis