Recent changes in the government of China may open opportunities for companies doing business in the world’s most-populated nation as the new administration moves to reduce red tape and literally shrink the size of what is believed to be the hierarchical bureaucracy.
The new administration, led by President Xi Jinping and Premier Li Keqiang, has said it will focus on shifting the economic drivers away from the past heavy dependence on investment and trade. Instead the government will focus on encouraging domestic consumption. This reflects a new governmental priority to improve the standard of living and quality of life for the Chinese people.
With projected growth of gross domestic product at 7.5 percent, the emphasis will be on quality expansion that enhances social and community development and takes into consideration addressing mounting environmental concerns. While the government would like to see higher household income through such measures as mandatory wage hikes and increased social spending on healthcare and public pensions, it also is supporting tax cuts for enterprises and other measures that would encourage expansion of the Chinese domestic economy.
The Chinese Academy of Social Sciences expects another 500 million people to move to cities in the next 20 years, and this rising urbanization is expected to help buoy the domestic economy. City dwellers make 10 times more than the rural population, with urban residents earning annually US$8,000 versus US$800 a year for those living in the country.
But urbanization also complicates the drive for balanced economic growth. As the numbers rise in cities, it will take careful planning, particularly when it comes to employment, education, social benefits and healthcare. The government already plans to increase the supply of affordable homes and curb real estate speculation to help reduce inflation.
The new administration is also pledging to expand access to healthcare with an estimated 200 million Chinese without coverage and as many as 13,000 hospitals in need of an upgrade.
From the business point of view, rising urbanization opens up economic opportunities for companies that provide consumer goods and services. This is particularly true for businesses relying on e-commerce where certain labor and land use costs are minimized.
Given the new emphasis on the environment, companies that produce and sell alternative energy and green technology also should benefit. The new government has promised to lower the level of air pollution, which contributes to a rising rate of lung cancer in Chinese cities and has prompted an increasing number of Chinese to emigrate. The government plans to impose emission caps on six major industries: coal-fired power generation, iron and steel, non-ferrous metals, petrochemicals and chemicals.
China remains a complex and diverse country, and companies that wish to preserve their license to operate there must keep up with the ever-shifting landscape. While the change in government to one focused on expanding the domestic economy and cutting red tape is a promising sign for corporations, companies should not underestimate potential pitfalls that inevitably open up when governments alter standard operating procedure, particularly when it involves a bureaucracy as intricate as China’s.