Finding a balance

By Zhang Ye Source:Global Times Published: 2014-12-1 23:23:01

GT Leader RoundTable discusses reform and growth

GDP growth has slowed as China negotiates its transition toward a more consumption-driven economic model. At the latest Global Times Leader RoundTable, experts and business leaders discussed challenges and opportunities facing companies in China.

Business leaders and experts gather on Thursday to discuss China's reform and growth. Photo: Zhang Ye/GT

At the latest edition of the Global Times Leader RoundTable held in Beijing on Thursday in partnership with Beijing North Head Consulting Co, the theme of "Re-balancing between Reform and Growth" was discussed by a panel of top business executives and industrial experts.

The 28-strong panel talked about their attitudes toward China's reforms and how enterprises can seize new development opportunities while the country experiences slower growth during its restructuring process.

Reforms mostly applauded

The panel was presented with a report based on a survey of multinational senior executives in China conducted in November by the Global Times and North Head. The survey found that 52.94 percent of the respondents fully supported the reform blueprint approved by the Third Plenary Session of the 18th Communist Party of China Central Committee, which was held in November 2013.

Wong EeMing, general manager of CRH China, said the reforms will offer opportunities. Wong said the central government's intention to raise industrial standards will benefit CRH, which focuses on the environment and emission controls.

The survey found that only 11.11 percent of respondents believed the manufacturing industry would offer the best opportunities for investment in the future.

However, Jing Ulrich, managing director and vice chairman of Asia Pacific JPMorgan Chase & Co, said that manufacturing will survive after going through a necessary period of difficulty, with innovative methods set to replace the old and polluting business models.

As for the future of the logistics sector, James Xiong, vice president of public affairs with UPS China, said that there will be big potential opportunities for the industry, as China is further easing its controls on overseas trading.

Ulrich remarked that trade will continue to be a driver for China's economy, adding that free trade agreements will lower tariffs and benefit trade-related industries.

She also noted that tremendous progress has been made in reform in China, "especially in the financial sector."

The central bank recently announced its first interest rate cut in two years, which will "create opportunities for financial companies," said Ulrich.

Andrew Polk, senior economist at The Conference Board China Center for Economics and Business in Beijing, was less optimistic.

"The [Chinese] financial regulators are trying to introduce volatility in a controlled way. That is an inherent paradox and that is why people are hesitant about the financial reforms," Polk said.

Adam Dunnett, secretary-general of the European Chamber of Commerce in China, also expressed caution.

"There will be winners and losers with China's reforms. China's call for public comments on the draft plan for an updated foreign investment catalogue in November showed there will be new opportunities, but it also showed that there will still be many restrictions for foreign companies."

Rangarajan Vellamore Rathangapani, CEO of Infosys China, said there should be clearer rules and more support for employment in the services sector.

Confidence remains

"Reform is never going to be easy. And there are so many things to change [in China]," said Li Lei, vice president of North Asia for SABIC and also a board member of SABIC-Sinopec JV in China.

Amid its transition toward a more consumption-driven growth model, China's GDP growth in the third quarter was 7.3 percent year-on-year, the lowest level since early 2009.

The slowdown in economic growth is the biggest challenge facing companies doing business in China, according to the survey.

However, Li said that companies should remain bullish and patient, as reforms need time to bring good results.

Polk sought to find a middle ground, believing China's economy will continue slowing. But, he said, a slowdown "will eventually bring a silver lining for the economy."

Jing Ulrich noted that China's economy is still performing fairly well, despite the slower growth.

During the APEC meeting in Beijing in November, Chinese President Xi Jinping described the current lower economic growth as the "new normal."

This means growth is now around 7 percent rather than 10 percent, said Ulrich, but every year the country still sees almost $800 billion in additional GDP growth.

Xu Sitao, chief economist and partner with Deloitte China, said that companies should be happy with 5 percent to 6 percent growth over the next 10 years.

The services industry is expected to be a new driver for GDP growth.

According to Ulrich, the sector currently accounts for less than 40 percent of China's GDP growth, while in developed economies the proportion is at least 60 percent.

So when the domestic services industry fully takes off, it will release massive opportunities, she noted.

Monopoly issue debated

The monopoly issue was also a hotly debated topic during the meeting.

"More probes are expected, and these should include investigations into administrative monopolies as well," said Adam Dunnett.

Daniel Deng, vice president of public affairs and business development at Goodyear Asia Pacific, generally agreed with Dunnet, saying that anti-monopoly investigations will be normal in China and calling for more transparency in the investigation process.

Against this backdrop, the panel felt surprised by one of the survey results, which was that zero respondents planned to increase their internal resources for government relations in the next five years.

Jerry Guo, a government affairs professional who has served at various multinational corporations, such as Novartis and Microsoft, emphasized the importance of cooperation with government agencies.

"If you want to succeed in the Chinese market, you need to make allies or friends with Chinese government agencies," said Guo, noting that this has been proved in many cases and that some companies have learned this lesson the hard way. 

This sparked a vigorous debate, with Rangarajan saying that the anti-corruption campaign in China may result in lower willingness to raise investment in government relations.

Rangarajan said business leaders should offer new ideas to the Chinese government, as this would improve the likelihood of the launch of policies that companies want to see.

The authorities in the Shanghai free trade zone have shown "willingness to explore new things," he noted.

Apart from strengthening ties with the government, seeking partnerships with local companies can facilitate multinationals' expansion in China, said Eliza Kwok, regional general manager of Vodafone Greater China.

"Government relations can help you be successful in China, but they won't save you if you run afoul of the law," said Dunnett from the European Chamber.

Posted in: Insight

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