China’s Plans and the Unknown Global Impact
Growing influence, shifting signals, competing demands
Ben Yeung and Stuart Witchell
China’s intention of a more powerful, independent role on the world stage is taking shape. Yet the country’s leaders also have to balance multiple priorities, from fine-tuning the massive domestic economy to defining more clearly the roles that will be played by private companies. There are also social issues including feeding its people, improving its energy supply and reducing pollution.
The October 2017 Party Congress cemented key central Politburo roles for the next five years and indicate some subtleties of the national agenda.
How these interests progress will offer insights on Chinese local, national and global priorities. Support for the president and a unified mission was no surprise, though Beijing’s official language reflects a fervor not seen for decades.
Clues emerged from the retirements and selections of officials who gained in rank or lost stature. Events at the Communist Party Congress make careers and set events in motion that can take a decade to materialize.
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New models may emerge for reforming state-owned enterprises (SOEs), a slow process to unlock yet more economic power. Although bank loans and subsidies have kept those industries alive, they support countless jobs. Private investment in these national entities could be seen as selling state assets and crown jewels, if not handled wisely.
National projects on food cultivation, transport and clean energy are for domestic benefit. An estimated 80% of jobs and much recent economic growth can be attributed to the private sector. Party officials also seek to balance social stability by supporting state enterprises, for example, which dominate the oil and gas, banking and telecommunications sectors.
China’s international showcase is One Belt One Road (OBOR), also called the Belt and Road Initiative (BRI). Contracts have already been signed worth more than $1 trillion covering more than 60 countries. And yet, policies to rein in capital flight have affected many investments in the past two years, with some Chinese counterparties unable to clear administrative obstacles to move currency abroad.
On the back of OBOR, Citibank won a contract from Bank of China to handle a $3 billion bond offering in April 2017. Other follow-on activities are expected with opportunities for international banks, law firms, insurance companies and professional services providers. Gigantic pools of money are queueing for investment worldwide.
It is worth noting, however, that every well-considered plan has unexpected outcomes.
Companies and executives were caught off guard by China’s crackdowns and anti-corruption efforts. One unanticipated consequence was a reduced appetite for luxury goods in major cities, after such consumption was vilified by Communist Party leaders. The anti-corruption campaign is expected to continue, with some speculation that it will shift focus toward grassroots, local levels of government and party officials. These are the contacts ordinary people interact with every day and any sustained campaign would be most gratifying to the populace.
A Bank of America/Merril Lynch report found government bank deposits in China rose as a result of the campaign because even honest officials feared initiating major projects that might draw attention. Others were concerned by the need for long-term political support. Billions in spending would be delayed or deferred, the study estimated, if even 1% to 2% of anticipated spending got idled.
Navigating multiple competing initiatives will challenge even the most seasoned player. Double-digit economic growth in China made for relatively easy success stories. Early wins led to overconfidence, precisely at the time when ‘get-rich quick’ schemes in real estate, cryptocurrencies and even Ponzi schemes emerge to separate commerce from speculation.
Now the work gets harder, requiring more than consumers, rising incomes and demographic trends, which will move strongly against China’s favor in the decades to come. Any hiccups within the Chinese economy will be felt globally in an interdependent world economy.
So, be prepared for everything to change, in case it all happens at the same time.
Stuart Witchell is a managing director in BRG's Hong Kong office. He spent 17 years as a diplomat in the British government’s Foreign and Commonwealth Office.
Ben Yeung is a BRG director in its Global Investigations + Strategic Intelligence practice for Asia Pacific, based in Beijing and Hong Kong.