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18 - China's Business Environment: A Macro Economic Perspective

Published online by Cambridge University Press:  18 November 2017

Yuwa Hedrick-Wong
Affiliation:
MasterCard International's economic advisor for Asia/Pacific
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Summary

A macro perspective on China's business environment is important because business executives and investors need to understand what is driving China's growth in terms of both cyclical and structural factors, so that they can plan and manage with better market insights that are anchored in a broader and longer-term perspective. Accordingly, this chapter seeks to answer three key questions, covering both the short and the long term, which could help develop such insights. These questions are:

  • (i) What is the outlook in terms of the “hard” and “soft” landing debate and what is really driving China's growth?

  • (ii) What are some of the real bottlenecks to growth?

  • (iii) What are some of the most critical challenges to China's longer term growth prospects?

  • OUTLOOK IN TERMS OF THE “HARD” AND “SOFT” LANDING DEBATE AND WHAT IS REALLY DRIVING CHINA's GROWTH

    The whole debate over “hard” and “soft” landing is completely misguided. The primary distinguishing feature of the current economic expansion in China is that it is led by the private sector. This marks it as completely different from all previous cycles of expansion since the 1978 opening of the economy. The private sector in China today is driven almost entirely by business profitability, which is in turn dependent on buoyant demand. They have had little access to bank financing, and because they invested with their own funds, they are insensitive to either bank credit tightening or higher interest rates. As long as they are enjoying high returns, which they are, they will continue to expand, and there is little the government can do about it. China's private sector entrepreneurs live and die by their profits, and hence are closely tuned to changes in the market.

    So what is the big fuss about the government bringing in new measures to curb investment and to “cool” down economic growth? The fact is that the government acted earlier this year in a proactive way to curb excessive investment in the public sector, primarily the state-owned enterprises. This is a reflection of how much the Chinese leadership has taken to heart the lessons learned from the last boom-bust cycle of 1993–94.

    Type
    Chapter
    Information
    ASEAN-China Relations
    Realities and Prospects
    , pp. 260 - 272
    Publisher: ISEAS–Yusof Ishak Institute
    Print publication year: 2005

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