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An Entrepreneurs View of The Chinese Economy
You will have heard about the turmoil of the Chinese stock market in recent news reports and wondered what is actually happening? Will China's economic turbulence affect the Western economies and will any dramatic reductions in value on the shares start to affect world-wide confidence? So while as outsiders, we see the world's second-largest economy cooling, within China, it is understood that the country’s next economic phase and development must embrace the market economy.
Reading the synopsis of the 3rd Plenary Session of the 18th CPC Central Committee, which was held in the autumn of 2013, together with the views of leading Chinese economists, it is clear there is much to do, building on the work that has already been carried out in previous reforms to effect this.
There has to be a considerable amount of collaboration between the government and the market. Large enterprises have been the backbone of China’s economy alongside government intervention and of course international franchises. However, the consumer alongside small and medium sized enterprises (SMEs) are the future. China has for 20 years been an ‘investment economy’ and this needs to change to a ‘consumer led’ economy. There is no better example of this fact than the recent steel price ‘war’. China is still producing steel at the same levels of production but cannot use it internally, so China is exporting (or dumping) it across the world at any price.
As has been experienced in Western economies, there are a number of areas that need introduction and development for SMEs to thrive. They are:
- adequate sources of finance;
- a legal framework for reporting, accounting and auditing; and
- a fair and collaborative tax system.
Those in positions of influence realise that these areas need careful introduction.
China has experienced the entrepreneurial spirit with the Pilot Free Trade Zone - Shanghai. There has been concern that it will influence the rest of China in a bad way and could lead to a large amount of capital flowing in and out of the country. Once China becomes a consumer led economy compared with investment led, this could and should self-regularise.
Reform and ‘opening up’ has been a crucial choice that China has made but the basic economic system where public ownership used to serve as the main body, now allows the development of all types of ownership, particularly private ownership.
The overall issue is that there is much to do, to allow this change to be effective, fair and retain the overriding Chinese culture. While the shareholders of companies listed on the stock market desire profitable results from their investments and unfortunately the management may fail to deliver these results then the value of their shares will drop. Expectations are not met. This proves the point that the market economy is not occurring within China fast enough. At the moment their reforms are not having any real effect. Therefore there are problems with a lack of local demand so the issues should only be local to China and that China is not yet the panacea of an economy looking for imports and likely to continue its pattern of growth. The investment led economy gave that growth, the market led and consumer economy has yet to materialise and deliver.
Understanding the mistakes, flaws and challenges faced by Western economies and their current thinking and overall thought leadership should allow this change to flourish in China, as long as those in government allow it.