China's Global Political Economy

Managerial Perspectives

Robert Taylor, Jacques Jaussaud, Robert Taylor, Jacques Jaussaud

• Publisher: Routledge
• Year: 2018
• Print ISBN: 9781138103733
• eBook ISBN: 9781351592437
• Edition: 1
• Topic: Business
• Subtopic: Management
• Index: Business

Much has been written about China's economy, as well as its business management system. China's Global Political Economy, however, is designed to bring together these two perspectives, serving to enhance our understanding of China's growing global role.

Examining changes in the management strategies of foreign companies investing in China and Chinese enterprises doing business overseas, this book analyses China's political economy in the context of the Communist Party's changing policies. The introductory section begins by studying the aspects of Chinese economic growth as it impacts on domestic social issues and the projection of Chinese power abroad. Within this overall framework, it then goes on to critically assess the effects of foreign investment, business management strategies, human resource management, corporate social responsibility and the financial services sector. Arguing that the encouragement of consumption is a significant objective of the Chinese leadership, the last section is concerned with the importance of the food industry.

This book will be of interest to students and scholars of Chinese business, management and international political economy, as well as policymakers and business practitioners.

1Introduction and overview

Robert Taylor

DOI: 10.4324/9781315102566-1

Introduction and overview

Recent decades have witnessed the emergence of China as a global power and its leaders are a major force in decision-making. The action of the International Monetary Fund (IMF) to designate the RMB as a reserve currency, involving special drawing rights, from 1 October 2016 is but one indication of China’s global ascent. The following chapters, mainly derived from papers presented at the 21st Euro-Asia Research Conference, held at Pukyong National University in Busan, the Republic of Korea in June 2016, reflect these concerns, focusing on ongoing key issues in China’s political economy. There are, however, constraints on China’s continuing ascent. In the wake of the Western economic crisis in 2008 supply and demand in the Chinese market was seen as a saviour of American and European economies. China’s economic growth in previous decades was based largely on labour intensive exports, a competitive low wage structure, facilitated in part by the influx of rural migrants to the cities of the country’s Southeastern seaboard and a cheap currency. But demand for Chinese goods like steel has slowed in Western markets and China’s importation of minerals in the context of the Chinese economic slowdown has impacted upon producers in developing countries. In addition, Chinese labour intensive goods have become less competitive in the face of lower wage economy producers like the Vietnamese. Moreover heavy industrial sectors like steel, largely the province of China’s state enterprises, are over-manned, resulting in the overcapacity of plant discussed below. Additionally, the Chinese leadership is concerned with rising regional and social inequality which threatens national stability, forcing debates concerning policy direction in CCP leadership circles. Most importantly, China’s emerging market economy operates in a one party state which could to a degree constrain the kind of innovation and entrepreneurship demanded by competitive global markets.

Chinese Communist Party (CCP) leadership relationships will necessarily have a bearing on economic change. The rule of Xi Jinping, CCP leader since 2012, has been distinctly authoritarian, in line with Chinese tradition, and there has been a tightening of party control under his leadership, with evidence of a power struggle over differences regarding policy direction. In general, it could be said that the leadership as a whole believes that only their monopoly of power can provide the discipline needed for national unity and thus economic advance; a pluralistic political system could invite disunity and dissidence. Factionalism within the CCP leadership seems to be centred around Xi Jinping and the Premier, Li Kejiang; the former representing the princeling faction of offspring of early revolutionaries and the latter leading those whose power base has included those promoted through the Communist Youth League. While Li Kejiang has appeared more committed to the market economy, Xi Jinping has been more concerned with the consolidation of CCP power in his own hands, witness his policymaking shift to leading groups which he chairs. Some observers have suggested that Xi is also exploiting nationalist fervour, especially over disputed islands in the East China Sea, to distract attention from the party’s internal battles. (Sheridan, 2015; Laurence and Sheridan, 2016; Ferguson, 2015). It might be argued that Xi Jinping and his close associates are more committed to the idea of the state as the one locus of power and influence; any market forces are at its service and must be controlled. There are resonances here of Imperial China. Socialism is like feudalism; both assign social status, even though the latter term must be used advisedly in the traditional Chinese context.

Undoubtedly linked to the campaign against corruption within the CCP itself, which has brought down a number of provincial casualties, Xi Jinping has embarked on a drive to censor social media when they do not reflect CCP views. Targets are social and entertainment news which should be dominated by ‘positive energy’, a pseudonym for only reporting an optimistic appraisal of ongoing developments and furthering the party line (Reuters, 2016). Potential sources of dissent are Non-Government Organisations (NGOs) which are to be subject to new rules stated in a document released by China’s State Council and CCP in August 2016. These guidelines follow a foreign NGO management law imposed earlier in the year and are designed to strengthen party guidance or control in such bodies through CCP representatives and Youth League branches. In addition the police are to be granted extensive powers to regulate foreign NGOs which must obtain the former’s approval (Li, 2016).

As stated, the CCP leaders see the strengthening of party control as a prerequisite for achieving the goals necessary to eliminate the constraints on economic growth. These impediments are addressed in the targets of China’s 13th Five Year Plan (2016–2020), outlined at the 5th Plenum of the CCP in 2015. In a later elucidation Xi Jinping outlined the objectives of medium to high rates of economic growth, a sine qua non for building a moderately prosperous society by 2020. The objectives of the plan may be summarized under two headings: innovation and entrepreneurship designed to avoid the ‘middle income trap’ and achieve the elimination of poverty by 2020.

Both these objectives are reflected in the plan to achieve an annual economic growth rate of 6.5% during the period from 2016–2020, indispensable for doubling 2010 GNP and per capita income for both urban and rural residents by 2020. To solve the problem of industrial overcapacity, especially prevalent in the state sector, the economy must be restructured through emphasis on innovation. In other words industries must become more efficient, with a premium placed on quality. This should take place in tandem with plans to reduce environmental degradation.

Such economic restructuring necessarily impacts on measures to reduce social inequality, particularly the urban-rural divide. The Chinese leaders have staked their legitimacy on achieving higher living standards for the population at large and, to contain rising expectations, seek to make consumption more affordable. Consumption rather than excessive investment in industrial plant is thus seen as a driver of economic growth. The plan is to lift all China’s poor out of poverty by 2020. Xinhua, China’s official news agency, has stated that the country had 70.2 million people in rural areas below the poverty line, that is, below an income of 2,300 yuan per annum, equivalent to US$376 at the 2010 rate of exchange. It is acknowledged that there is a dire need to improve rural services like infrastructure, electric power and the Internet. Rural facilities like education and healthcare lag behind those of the cities. Through both fiscal expenditure and private investment the aim is to take ten million people out of poverty each year from 2016 to 2020. If these goals are to be achieved, planners must factor in demographic change; the one child policy is being abandoned in the wake of a continuing decrease in the number of the working age population, since 15% of the population is aged sixty or over (Zhang, ed., 2015).

Demographic change together with industrial overcapacity, the latter a target for economic reform, have implications for employment structure. At the onset of the global financial crisis in 2008 the level of Chinese exports was drastically reduced as a result of economic retrenchment in Western countries. This resulted in industrial overcapacity in China, that is, an increasing differential between production capacity and actual production, an issue raised in a report by the European Chamber. The Chinese government’s response was a fiscal stimulus package, focusing on investment in infrastructure and increased lending to SOEs which then expanded industrial capacity. Thus inefficient manufacturing was subsidized and this led to only a short-term effect in stimulating the economy. Efforts since to reduce overcapacity have been hampered by the fact that China is not a unified market but a series of regional markets. This has a concomitant, barriers to trade and investment, engendering provincial particularism. Local governments, mindful of the dangers of social instability, are reluctant to cause bankruptcies and lose tax revenues (European Chamber and Roland and Berger Consultants, 2016).

An example of overcapacity is the steel industry where the main players are SOEs which, receiving official support, have less need to respond to market signals than private enterprises which reduce production when prices fall. As of 2016, China accounted for 50% of total global steel output, as compared to 15% at the turn of the century (Liu and Song, 2016). The solution is to reduce excess capacity but, in spite of central government plans to do so, China still produces as much steel as the rest of the world combined, and in 2014 exports of that product rose by 50.5% (Mananquil and Wagley, 2015). An unintended consequence of this overcapacity is to inhibit the movement of underemployed workers to service jobs, where labour demand is growing (Bloomberg News, 2016). It has been suggested that a Chinese initiative, the One Belt One Road (OBOR), designed to provide infrastructure linking Asian and European markets and financed by the Asian Infrastructure Investment Bank, could help solve the incapacity problems. In the short term, however, the markets of central Asian countries linked to China by the scheme would surely prove too small to absorb excess production on any scale (European Chamber and Roland Berger, 2016).

A long-term solution to the problem of overcapacity is innovation. Companies in overcapacity industries, however, suffer from low profit margins; this discourages investment in research and development (R&D) projects. As the Boston Consulting Group has been quoted as stating, the greatest income returns have been shifting ‘from commodity products to focused specialties’. Perhaps nowhere is the issue of overcapacity discussed above better demonstrated than in the EU countries dispute with China over steel imports (ibid).

Accordingly, the Chinese leaders are adopting more focused measures to reduce overcapacity, one palliative being the offer of 100 billion RMB in additional funding for social security, designed to cushion the effects of unemployment among laid-off workers (He, 2016). In the longer term, of course, a better structured social security net will be crucial.

Strategically, however, the solution to overcapacity lies in innovation and its concomitant, R&D. In 2010 China’s State Council launched the Strategic and Emerging Industries Concept, identifying innovative development in such priority industries as energy efficient and environmental technologies, high end equipment manufacturing and biotechnology as drivers of China’s future economic development (Marro, 2015).

As a key role will be played by small and medium sized enterprises (SMEs), often privately owned, they should be afforded greater protection through intellectual property (IPR) laws. Lack of protection potentially inhibits R&D in China, whether by foreign or domestic companies (European Chamber and Roland Berger Consultants, 2016). In fact, the private sector may well prove a driver of economic growth through innovation and entrepreneurship, a linkage defined as ‘innopreneurship’ by Professor Ying Lowrey of Qinghua University, constituting the Alibaba model, after the Chinese enterprise. This is said to facilitate increasingly efficient production leading to higher productivity, that is, in terms of the amount of output produced per unit. China is replete with examples like Haier, the latter investing in technologies like 3D printing (Kenyatta, 2016; Armstrong, 2015).

Nevertheless a constra...

Table of contents

• Cover
• Half Title
• Series
• Title
• Copyright
• Contents
• List of figures and tables
• Acknowledgements
• List of abbreviations
• List of contributors
• 1 Introduction and overview
• Part 1 Political economy
• Part 2 Inward and outward FDI
• Part 3 Services and consumption
• Appendix
• Index