China reaches tipping point

So says long-time China specialist Alan Carroll. Speaking at the recent China Business Summit in Auckland, Carroll says now is seminal time for the Chinese leadership as members of China’s most important decision-making body, its Standing Politburo Committee (SPC), are appointed later this month.

With seven of the nine existing members due to retire, and the new SPC expected to be  cut back to just seven members in total, Carroll predicts swing towards more open, reformist approach. He suggests the cutback will effectively drop out the direct military representative (from the People’s Liberation Army, the PLA) and propaganda chief.

He says reforms are likely to centre around the domestic capital market, and the roles of the private sector and state owned enterprises.

Carroll is executive chairman of Carroll Partners International, strategic management consultancy with specialist expertise in the Asia Pacific region. He is also founder and executive chair of the Pacific Rim Forum.

“Western countries are going to have much more opportunity to do things in China – including NZ companies. The private sector is going to have bigger role to play in China. The SOEs will be better managed and there will be fewer of them. And the banking system is about to be changed lot,” he says.

“A whole host of things will have to happen and they are going to take an inordinate amount of courage and direction.”

Carroll told summit delegates that if anyone had talked about this sort of stuff even two months ago “people would have thought they were smoking something”.

“The important point I’m making is that we’re about to see real change. We’re at China’s tipping point. No-one other than new government with new elective would be able to pull it off,” he said.

The speed of change at the top of the Chinese leadership has been exacerbated by the fall of Chinese politician Bo Xilai, the former commerce minister who is now facing series of charges relating, among other things, to having had “significant responsibility” for the murder of British businessman Neil Heywood in Chongqing, and who is likely to be given prison sentence.

Carroll says China continues to “learn its way up the value chain”. It is working its way through Premier Wen Jibao’s famous four ‘uns’: or concerns that the economy was ‘unstable, unbalanced, unco-ordinated and unsustainable’.

“The Chinese know they can’t just keep doing more of the same.”

As an example, Carroll says that since 2009, Chinese SOEs made over 3500 attempts to buy offshore. “Less than 200 succeeded and most of those are in Africa. The reason they didn’t succeed is they didn’t know how to do it. They’ve learnt their lesson on that and they’re still learning. They have to professionalise their SOEs to make them much less political. The Chinese are now looking at all sorts of ways to do that.”

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