The Chi­nese econ­omy in 2014 Ex­pect new poli­cies aimed at en­cour­ag­ing sus­tain­able de­vel­op­ment

China Daily (Hong Kong) - - BUSINESS VIEWS - MIKE BASTIN

It is a sign of the chal­lenges fac­ing the Chi­nese econ­omy right now that the closed­door an­nual Cen­tral Eco­nomic Work Con­fer­ence lasted four days, rather than two, this year.

The cul­mi­na­tion of this year’s con­fer­ence as well as the time of year, has also led to in­creased at­ten­tion to the Chi­nese econ­omy’s per­for­mance in 2014.

Much of this at­ten­tion has cen­tered on the cen­tral gov­ern­ment’s macroe­co­nomic pol­icy and key eco­nomic tar­gets.

But is macro pol­icy the real is­sue and should we ex­pect much change in 2014? In­fla­tion tar­gets are likely to re­main at sim­i­lar lev­els, some­where be­tween 3 and 4 per­cent. Since the Con­sumer Price In­dex peak of 6.5 per­cent in July 2012, in­fla­tion­ary pres­sures have eased amid a tight­en­ing of gov­ern­ment mone­tary pol­icy.

Lit­tle change is also to be ex­pected in gross do­mes­tic prod­uct tar­gets for 2014. Any re­duc­tion far be­low 8 per­cent will un­doubt­edly lead to a se­ri­ous in­crease in un­em­ploy­ment lev­els with a con­se­quent, dele­te­ri­ous ef­fect on so­cial sta­bil­ity. A fig­ure around 7.5 per­cent will, there­fore, again dom­i­nate gov­ern­ment GDP fore­casts for 2014.

How­ever, just a cur­sory glance back in eco­nomic his­tory tells us that macro pol­icy is im­por­tant but also that sig­nif­i­cant, sus­tain­able eco­nomic de­vel­op­ment is driven by ac­tiv­ity in the mi­cro en­vi­ron­ment. Chi­nese com­pa­nies and their brand-build­ing and mar­ket-ex­pan­sion plans are the key to over­com­ing China’s ma­jor eco­nomic and so­cial chal­lenges.

It is, there­fore, the Chi­nese gov­ern­ment’s poli­cies and ac­tions at the mi­cro level where change is to be ex­pected in 2014.

Poli­cies aimed at sup­port­ing smaller Chi­nese com­pa­nies are also to be ex­pected, par­tic­u­larly those based in China’s less-de­vel­oped re­gions, such as sup­port­ive fi­nance ini­tia­tives to help with ed­u­ca­tion and train­ing in all as­pects of busi­ness de­vel­op­ment and man­age­ment.

Gov­ern­ment poli­cies aimed at the for­ma­tion of in­dus­try clus­ters, vi­tal in the emer­gence of global Ja­panese and South Korean firms, are also pre­dicted.

Gov­ern­ment rhetoric will con­tinue to high­light the im­por­tance of do­mes­tic con­sump­tion dur­ing 2014, but in or­der for this to in­crease and a more vi­brant, last­ing con­sumer cul­ture to emerge it is ac­tu­ally in­ter­na­tional ex­pan­sion by Chi­nese firms and their brands that mat­ters most.

In­creased in­ter­na­tional ex­pan­sion of China’s larger com­pa­nies, such as Huawei Tech­nolo­gies Co Ltd, ZTE Corp, Len­ovo Group Ltd, Haier Group and Hangzhou Wa­haha Group Co Ltd, will not only con­trib­ute con­sid­er­ably to the Chi­nese econ­omy in the short term but will also at­tract and re­tain far greater pur­chases by the Chi­nese pub­lic.

As a re­sult, do not be at all sur­prised to wit­ness an even greater num­ber of takeovers by Chi­nese firms of fa­mous for­eign com­pa­nies and their brands — and even more au­da­cious ac­qui­si­tions. The Bright Food Group Co Ltd’s takeover of Weetabix Ltd and Zhejiang Geely Hold­ing Group Co Ltd’s pur­chase of Lon­don taxi com­pany Man­ganese Bronze Hold­ings Plc re­spec­tively rep­re­sent a very thin end of a very thick wedge.

Ex­pect the Chi­nese gov­ern­ment to play a piv­otal, al­though in­di­rect, be­hindthe-scenes, part in fa­cil­i­tat­ing fur­ther for­ays by Chi­nese com­pa­nies into over­seas mar­kets via ag­gres­sive ac­qui­si­tion strate­gies.

Macro pol­icy and the sta­bil­ity and ex­pan­sion of the macroe­con­omy will be no less im­por­tant in 2014 but even more im­por­tant and vi­tal to fu­el­ing con­tin­ued eco­nomic growth in 2014 and be­yond will be the ar­rival of Chi­nese firms on the in­ter­na­tional stage.

Ex­pec­ta­tions are high but not as high as the takeover bids that will lead to fur­ther in­ter­na­tional mar­ket pen­e­tra­tion by Chi­nese busi­nesses through­out 2014. The au­thor is a vis­it­ing pro­fes­sor at the Univer­sity of In­ter­na­tional Busi­ness and Eco­nom­ics in Bei­jing and a se­nior lec­turer on mar­ket­ing at Southamp­ton So­lent Univer­sity’s School of Busi­ness. The views do not nec­es­sar­ily re­flect those of China Daily.

PRO­VIDED TO CHINA DAILY

In­creased in­ter­na­tional ex­pan­sion of China’s larger com­pa­nies, such as Huawei Tech­nolo­gies Co Ltd, is ex­pected to con­trib­ute sig­nif­i­cantly to the Chi­nese econ­omy next year.

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