8/14/2019 Letter From Beijing: Mar-Apr 2009, China Business Review

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The year of the ox brings severaltransitions that will affect USbusiness in China. One is the

change of administration in the UnitedStates, which could bring revisions totrade policy for China, though it is stilltoo early to tell. Another is theacceleration of the shift of Chinaseconomy from one that is driven

largely by exports to one that is led by domesticconsumption.

The year behind usLast year might be characterized by the popping sounds of

bubbles (real estate and stocks) and the shattering of crystalballs throughout China. The Shanghai Stock Exchange fell astaggering 70 percent, and real estate sales slowed after yearsof growth and price increases. At the beginning of 2008, Isaw only two major themesthe fight against inflation(public enemy number one at the time) and the nationalpreoccupation with the success of the Olympic Games. Thesubsequent run of major events surprised everyonesnowstorms, disturbances in Tibet, the calamitousearthquake in Sichuan, the national milk scandal, and the

onset of the global economic crisis. Most of the news sincehas been the knock-on effects of the economic slowdown,particularly rising unemployment caused by slowing exportindustries and construction, and the need for Chinasleadership to steer the economy to safety.

For US-China Business Council (USCBC) membercompanies, the past year brought some significantregulatory changes (in labor law, new rules around favorabletax provisions for high-tech status, and changes in patentand antimonopoly laws). Many companies also participatedin earthquake relief efforts, and some sponsored orotherwise supported the Olympics.

ChangesThe US elections have brought some uncertainty to

Chinese and foreign businesspeople, as well as to PRCgovernment officials, who wait to see whether the new USadministration or Democratic majorities in Congress willimpose different requirements on China and bilateral tradeand investment. The waiting period as administration postsare filled and policies are reviewed sharply lessens the amountof bilateral activitywe in USCBCs China offices areaccustomed to regular US government visits and negotiations,and most of these activities slowed in early 2009.

Here in China, the larger questions revolve around theChinese economy. Top-level economic planning in the fallof 2008 highlighted a renewed determination to includeChinas 700800 million rural residents in the countrysrecent prosperity; the decision to allow land transfer rightsfor farmers was a landmark change that may havesignificant effects in coming years, but, as with so manyChinese policy shifts, the details remain obscure andhighly contentious. The decline of industrial andconsumer demand in major world markets, and resultingfall in Chinese exports, merely increased the need for

domestic demand to absorb excess goods and provideemployment. Finally, concern over the macro-economyprompted Chinas leaders to initiate an economic stimuluspackage of 4 trillion ($585 billion). Unemployment isclearly the new top concern for Chinas leaders.

Looking aheadEvery year, USCBC surveys its member companies on the

challenges they face in China, and this year could bringchanges to some of the top issues theyve cited. On thepositive side, the slower economy may bring some relief fromthe rising cost pressures of recent years (inflation fell to 1.2percent from 9.1 percent last January), a slowdown in the

turnover and costly retention of managerial talent, and someeasing of licensing and approvals to expand distribution inChina as officials seek to bolster business activity. Conversely,competition, overcapacity, and protectionism could worsen.

The annual National Peoples Congress (NPC) meeting(held in early March, after the CBRwent to press) setsimportant legislative goals and other policies for China. Apublic poll in February showed that Chinese citizens wantthe government to address corruption, medical reform,employment and income distribution, fairness in educationand the judiciary, and other social issues. The NPC willcover these issues and more, as the government also seeks torestore the economy and address pressing needs such as

energy supply and environmental protection. For USCBCmember companies, a host of related regulatory changes inthese areas may bring new business opportunities.

Change is a constant companion to those of us in theChina business environment, as the results of 30 years ofreform unfold and a dynamic economy emerges. As ever, thechallenge will be to stay abreast of developments and tocapitalize on the potential opportunities for US business.

Robert Pooleis vice president, China Operations, at the US-ChinaBusiness Council in Beijing.

Letter from Beijing

TransitionsRobert Poole

16 MarchApril 2009 chinabusinessreview.com

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