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GT Leader RoundTable’s 2nd anniversary

On Thursday evening, a group of executives and media personalities enjoyed a vigorous debate on the impact that State reforms would have on the business hopes of multinational companies (MNCs) in China.The topics under discussion ranged from potential stagnation ahead of the 18th National Congress of the CPC to how MNCs themselves need to adapt to stay competitive. The 2nd anniversary of the GlobalTimes Leader RoundTable adopted the theme of “Reform in China – An Opportunity or a Threat to MNCs?” Moderator John Russell, managing director of North Head, set the tone early for the debate by saying that despite international concerns about China’s growing clout, it remains absolutely vital for global firms. Russell explained that 97 percent of European firms operating abroad view China as a priority market but that apprehension remains at the way reforms implemented by the central government might affect business hopes. As China’s domestic business environment modernizes, Russell pointed out that more levels of government were coming into the mix.

MNCs feeling the squeeze

Li Hongwei, managing editor of the Global Times, noted that the executives around the table, across many industries, viewed these issues as being of common concerns before Russell began a poll on attendees’ short-term optimism for business growth.
Cyrus Ma, vice president of SGSCSTC and a familiar face at past RoundTables, struck a somber note, saying that it was difficult for MNCs to be optimistic at this time. Ma recognized that reform was coming but he felt the subsequent net growth in investment would be tilted in favor of State-owned enterprises, leaving MNCs without a share of the pie. Frank Xiong, vice president of software development at Oracle, answered that it was difficult to express a short-term outlook, since this is largely an antithesis for MNCs. He added that in a longer timeframe of three to five years, he held an optimistic outlook. This difference between the two heavyweights quickly opened up a difference that defined the evening’s debate. It quickly became clear that, far from being a united group, the visions of the executives around the
table largely differed from industry to industry.

Industry differences

Mi Xiaochun, vice president of Airbus China, highlighted the growth of the airplane giant in China. She pointed out the company’s growth has been shared by its partners. Airbus has established an A320 final assembly line in Tianjin and a manufacturing center in Harbin that are performing well. As such, the company’s outlook for its development in China remains confident. Jared Lee, Qatar Airways’ country manager for China, chimed in by saying that MNCs could not react to cyclical short-term effects in the Chinese market. He was in full agreement with Mi, asking the panel what could possibly make the airline industry pessimistic.The debate moved toward the need for MNCs themselves to adapt. A lot of the early discussion revolved around how reform by the Chinese government would affect the hopes of MNCs. It was pointed out by business representatives that MNCs would also have to look closer to home for change. This issued a challenge to companies, in that they would have to adapt, adjust their development and create new strategies to change with reform in China. There was a warning that if they were unable to do so, they would struggle.

United we stand

At this point, the honorary chairman of the evening, Long Yongtu, China’s chief representative at its WTO accession talks, took the floor.He spoke about his expectations for China’s growth, stating clearly that he thought the government would not allow GDP to dip below 9 percent this year. He encouraged MNCs to continue investing and the government to work to improve its functions, simplify regulations and decrease red tape for foreign firms. He touched upon Premier Wen Jiabao’s words at the Davos World Economic Forum in Tianjin last year, when he said that MNCs should be treated like local Chinese companies. Long agreed with this attitude but, running counter to Cyrus Ma, he said that reform would bring the same opportunities and risks to all companies in the country. This was picked up in the following debate with some arguing that this uncertainty is largely caused by the upcoming change at the 18th National Congress of the CPC. Some argued that this political transition could bring inertia to the SOEs and that MNCs would have to adopt a wait-and-see attitude. This pause could prove negative for China as other Asian economies are already beating out China in certain measures of business attractiveness. However, strong Chinese champions of industry could help rather than hinder MNCs. CCTV presenter Tian Wei took an opposite stance, arguing that a slowdown in economic growth could prove beneficial, as it would force a focus on the quality of growth, instead of quantity. Divided we fall The debate about the priorities of China’s economic reform was brought to a conclusion by Zhuang Jian, senior economist at the Asian Development Bank. He pointed out that China has made rebalancing its economic structure a priority. Zhuang said that achieving this would be a big challenge, and that if more reform did not accompany it, business opportunities for MNCs would actually be reduced in the long term. In closing, Russell summarized that most participants were pessimistic in the short term but more optimistic for the longer term. He picked up on Long’s comment about MNCs becoming like Chinese companies as the defining trend of the evening. Russell added that this may be true but that attitudes to risk differed greatly in China from those in the US and the EU. Rounding out the debate, Russell called on MNCs to adjust to reforms in the Chinese market, in order to allow the evolution wished for by Premier Wen to accelerate and come true for the benefit of all. read more

GT Qingdao Leader RoundTable

Global Times’ latest RoundTable Forum, hosted by the city of Qingdao, sought to address a range of problems that the Chinese economy will face in the future, rang­ing from how global markets react to China’s growth to the importance of getting urbanization just right.

The forum’s plenary session, hosted by CCTV personality Yang Rui, revolved around a subject close to the hearts of entrepreneurs, ministers and journalists alike, namely how China is going to ensure its long-term growth and development prospects.

Reasons for optimism

The country’s 4 trillion yuan ($634.4 billion) stimulus package at the onset of the financial crisis came under particularly close scrutiny.

Simon Cox, Asia economics editor for the Economist, said that the suc­cess of the stimulus early on showed that the government would now be re­luctant to contemplate another similar package. For Cox, the fact that China’s growth rate was slowing did not dim optimism for its future prospects, as the authorities are now in a better position to take stock of long-term structural problems.

This optimism was echoed by David Li, country head for UBS China, who believes that some of China’s best advantages have yet to be fully tapped into, namely the trends of urbaniza­tion and globalization. Li added that China’s natural population diversity would also soon be seen pushing the development of many industries, lead­ing him to remain bullish despite the slowdown.

The dynamic between globaliza­tion and the Chinese economy was a divisive issue, with Bruce McKern from the China-Europe International Business School commenting that be­yond the advantages of globalization, it would also place stern entry barriers on Chinese companies. McKern la­mented the disparity between China’s scientific achievements and numbers of patents to the international applica­tion of such discoveries, pointing to a potentially rough ride for Chinese firms seeking to make it big in exter­nal markets.

This focus on companies, rather than on the market as a whole, was picked up by John Russell, manag­ing director of North Head. Russell explained that the ways in which com­panies cope with major changes to the economy should be a good measure of the feasibility of government plans and requirements. He gave the example of the city of Shanghai, whose current five-year plan demands a shift to a 70 percent services-based economy. Ac­cording to Russell, given the continu­ing importance of manufacturing industries to the Shanghai economy, such an overhaul will demand huge changes from companies.

With the role of a government-controlled economy under discussion, Jia Kang, from the Ministry of Finance, offered a spirited defense of the government’s reforms. Jia said that it was easy to criticize the stimulus pack­age without deep analysis but that to prevent government-led reforms now would invalidate much of the mission to lower inflation and help companies develop.

While Simon Cox admitted to being a fan of stimulus, he countered Jia by saying that the Chinese stimulus plan’s major flaw had been to go through the banks, making financial reform that much more difficult and inflating the housing price bubble. He remarked that the stimulus plan would have worked better had it been more focused toward specific issues such as pen­sions or healthcare.

Despite a back-and-forth debate, the mood in the room remained largely optimistic and bullish about China’s future prospects, leading China National Radio executive Fang Jun to speak up. Fang expressed his dismay at the positive tone the discussion had maintained, dismissing it as an effort by the speakers to comfort themselves.
Fang stated that, to his mind, the good times in China were almost gone, and that consumers, govern­ment and entrepreneurs would all have to prepare for a slowdown. This constant focus on growth was remark­ably blinkered, according to Fang, saying that it omitted any focus being kept on SMEs and “township enter­prises”, for which a constantly rising growth rate was no guarantee of a stable future.

Challenges of urbanization

The varying concepts of urbaniza­tion in China were the theme of one of the day’s sub-panels, with the example of Qingdao used as a model. Hui Xin’an, secretary of the CPC Shibei District Committee from Qingdao, pointed out that urbanization had to suit the model and needs of each city and that urbanization could not be separated from cultural development. He put forward the example of the old buildings and cultural heritage of Shi­bei district, which had to be protected and integrated into Qingdao’s drive to build its modern image and function.

CCTV commentator Liu Ge said that waves of urbanization had been seen throughout China’s recent history of reform and opening-up. The first phase saw special economic zones being built, with the iconic process of building skyscrapers atop small villages, as happened in Shenzhen. In the last two decades, tracts of farm­land have been incorporated into new districts of existing cities. We are now in a new phase which sees the climax of urbanization as towns and villages across China change their economic structure and expand their scope. read more

The 10th Roundtable-Beijing,2013

Many pages have been written about the changes that the new Chinese leadership may, should and will bring about in numerous arenas. Focusing on the hopes and worries of multinational companies in China, the Global Times held its10th Leader RoundTable on Tuesday, bringing leading executives, economists and diplomats together under the theme of “The New Era of China – Implications of the Leadership Change on China’s Foreign Business Climate.”

Xu Sitao, chief representative of the Economist Group in China and the evening’s moderator, began by outlining the economic woes facing the new leadership. He explained that the current growth model is not sustainable and that both rebalancing and financial liberalization are long overdue.
The government is aware that market forces have moved beyond the control of regulators in some areas and that there are several priorities after the handover, Xu said, such as working on the business environment for MNCs, as well as incumbent Vice Premier Li Keqiang’s promise of “structured tax cuts.”
Xu invited Li Hongwei, managing editor of the Global Times, to provide an insider’s perspective. Li acknowledged that expectations are high for the new leaders as the economy slows. For Li Keqiang, the main challenges will be the yawning income gap and political reform. Major obstacles to reform, such as State-owned enterprises (SOEs), are in place with not enough having been done in the last 10 years to overcome them.

For Robert Poole, former vicepresident of the US-China Business Council, the voices calling for
reform have grown louder both worldwide and in China over the last 18 months, peaking during and
around the 18th National Congress of the Communist Party of China (CPC) in November 2012.
However, for any who thought that reform was a true government priority, Poole pointed out that a top-level business conference he had attended a couple of weeks before was full of the same empty slogans as before, with no real advances on offer.

The debate then switched to how intricately woven economic reform would be with political reform. Edward Tse, chairman for Greater China for Booz & Company, said that the time when people were satisfied just with economic reform is over, and that a discussion about political development is necessary, considering options such as evolution within the one-party system or drawing lessons from the Taiwan model.

Arthur Kroeber, managing director of GaveKal Dragonomics, concurred with Tse but added that separating political and economic reform would be difficult since many of the economic questions facing the government are political ones. He explained that the former model of growth depended largely on the mobilization of capital, with little to no worry about efficiency or distribution, but that the era was now at an end. Long-awaited reforms for SOEs, for property tax, for breaking local protectionism all require more political transparency, and could spark trouble if not done fairly. Kroeber then moved the discussion on to innovation, saying that China’s policies had pushed it further away today from the forefront of global innovation than it had been five years ago, in contrast to the US which continues to improve its speed of innovation. This is one of the factors giving rise to public discontent, shown by Chinese people taking their capital abroad, as well as sending their children overseas to study at an increasingly early age. He concluded by saying that easing up restrictions would lead to more competition and innovation.

As SOE reform had only been touched upon until now, Lynn Lau, Asia Pacific Director of a major UK life insurance company, returned to the subject, offering up the Singapore model as one that Chinese officials were curious about. The Singapore government has been trying to reduce the government’s influence on the SOE sector. The Chinese insurance regulator has recently been freeing up investment channels which open up opportunity to foreign firms, recognizing that they are able to offer new options in areas such as asset management. Lau was optimistic the new leadership would seek to encourage foreign firms’ participation in the economy. These views on SOE reform were met with a rebuttal from Janet Kong, managing director of the research department of investment bank CICC.

As the only SOE executive at the table, Kong took a different tack. She said that following the 18th National Party Congress, political tinkering might be on the table but that widespread political reform would not happen. Kong questioned whether SOE reform would be one of the government’s top priorities as SOEs still account for a sizeable amount of GDP. Likening it to the government cutting off its own hands, she also pointed to a wide number of industries, such as food and beverages, which are largely free of government interference.

Poole questioned this logic, saying that there are over 100 industrial sectors in which China restricts foreign access and that this form of protectionism neither served the country
nor its consumers. Xu Sitao returned to the Global Times’ Li, asking him for his two cents on the matter. Li took a conciliatory line, agreeing with Kong that the leaders were stressing continuity and that not too much was expected. read more

Boao Edition 2013: China’s Reform Agenda

In three days of debate, across countless official sessions, press conferences, interviews and private meetings, the delegates of the Boao Forum for Asia 2013 (BFA) have addressed many thorny problems. But perhaps the main concern was the issue of Chinese reform.

The Global Times held the latest edition of its Global Times Leader RoundTable, in cooperation with CCTV News, to seek predictions on the path the Chinese reform agenda will take. CCTV host Yang Rui, who moderated proceedings, opened up the debate by pointing out that after decades of growth China had seen a
string of disappointments last year. This had exposed vulnerabilities and planted seeds of doubt as to whether
the country was truly capable of meeting the challenges in ensuring its political and economic reform. He then turned to the panel to discuss the major challenges awaiting China’s new leadership.

For former US Trade Representative Charlene Barshefsky, there are two major challenges facing China. First, the gains seen from the first generation of reforms and from rural-urban migration have largely dissipated. New economic models of growth now sorely need to be put in place. However, the second challenge is the process by which the Standing Committee of the Political Bureau of the CPC Central Committee makes decisions. In Barshefsky’s eyes, this process must become far more effective if reforms are truly to take place. Wang Yijiang, professor of human resource management and economics at Cheung Kong Graduate School of Business, picked up on Barshefsky’s statement and asked how the Chinese government could improve their decision-making process and how the people could have their views heard within this process.

Justin Lin Yifu, former chief economist for the World Bank, said the government has recognized the need to engage the public in the decision-making process. New social media such as microblogs are part of that and Lin
expressed his hope that the government would use this to push ahead with reform in a progressive way.

LSE professor and author Martin Jacques pointed out that China’s debates on foreign policy were far more interesting than those in the UK as British people feel powerless and see little meaningful debate. However, Chinese assets such as microblogs have empowered the Chinese public.

Fan Gang, director of China’s National Economic Research Institute, made the point that fair competition must be ensured for everyone. The steps to ensure this must include breaking the monopolies of SOEs and shackling banks’ excessive power. This would allow for a deeper pool of talent to help generate new ideas, put these into practice and help China move forward into the next stage of development. Jacques also said that solving deep-seated inequality was of paramount importance, but Yang asked whether Fan’s desire to see the power of SOEs and banks reined in was too optimistic.

Barshefsky noted that any achievements would simply depend on the scope and extent of reform.She stated confidently that if the reforms are significant enough, China can continue its 8 percent growth for decades to come, but that to do so would prove complicated and controversial. The subject of continued 8 percent annual GDP growth for China proved a divisive one.

Fan proved the most optimistic, saying that the resources were there for China to use, and that all that remained was how to use them and do so efficiently. He echoed Barshefsky in saying that China had the potential to grow at 8 percent for 20-30 years to come but went further in saying that itneeded to do so. Fan pointed out that 35 percent of Chinese people are still living as farmers and that the only way to relocate them was to create jobs for them in cities, and that continued fast growth was crucial to seeing this process through.

Lawrence Brahm, a political economist and author of China’s Century, challenged Fan on his 8 percent prediction, asking why this figure was still seen as iron-clad since former Premier Zhu Rongji set it as a target in 1998. For Brahm, the real priority was for China to move from quantitative to qualitative growth, and make such targets less important. Fan asked whether China would be happy with 3 percent growth, and questioned whether a slower rate would allow China to catch up with the developed world in 30 years.

He said that quantity matters as much as quality since 8 percent growth still only translates to about 5 million new jobs a year for migrant workers. Brahm countered by saying that blind growth would only bring inflation, bankruptcy and unemployment, adding that China was suffering from inefficient growth. Barshefsky stepped in to move the debate toward the composition of GDP in China. With a shrinking workforce, the output and export
model of the Chinese economy is no longer going to be sustainable, she said.

The percentage of GDP accounted for by consumption is currently only 35 percent, still very low and this must be enhanced to achieve the next stage of development, Barshefsky noted. Perhaps the largest obstacle remains the hukou, the household registration system, which locks out 300 million people from being consumers and fully productive members of the labor pool. Their children will also be disenfranchised,Barshefsky warned. It was Jacques who struck perhaps the most penetrating note of caution, saying that anyone who expects a significant change in ratios of investment to consumption in China will be disappointed. read more