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China CEO Council - 5th Gen Leadership - Selected Pre-Readings [2012 May 21]

China CEO Council - 5th Gen Leadership - Selected Pre-Readings [2012 May 21]

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Published by: Orion Constellation on May 22, 2012
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China Center
For Economics and Business
China CEO Council
Pre-Reading Pack
5th Generation Leadership
Return to Reform, or Return of theEmpire?
June 1, 2012
BeijingIt is a truism that behind the
curtain of China’s stunningly fast change are the continuities – 
what we call “Chinese characteristics” – 
many of which are stubbornly resistant to changeand pose risks to China
modernization process. The intention and effectiveness of China’s
generation of leaders to navigate through and remedy these risks, many of which have
arguably now become acute, may be the most important factor shaping China’s sustained
development and the medium- and long-term outlook for MNCs in China.This China CEO Council session will attempt to portray the new leadership
’s agenda – 
 embraced or imposed
and dimension the political-economy dynamics surrounding them toseek insights on what reforms may be in offing, and what the upcoming leadership transitionmay
mean for business
. In particular, the session will explore the ascent, extent and nature of structural corruption in the business environment
i.e. the systemic use of relations to accesseconomic opportunity and extract disproportionate economic benefit
and how thisphenomenon has arguably become the defining challenge for both the Party and for MNCs inChina.Can structural corruption be resolved and remedied in an orderly way
and if not, then what?
Attached, please find a selection of recommended (optional) pre-reading materials for the meeting.The China Center Team
China Investment Boom Starts to Unravel
By Jamil Anderlini, The Financial TimesMay 14, 2012In an unguarded moment in 2007, the man anointed to take over next year as the helmsman of the
world’s second
largest economy revealed his doubts about China’s economic growth statistics.
The country’s official gross domestic product figures are “man
made” and therefore unreliable, Li
Keqiang told the US ambassador at the time, adding with a smile that he regarded them as being
“for reference only”.
 When evaluating the speed of economic growth Mr Li, who is expected formally to replace Wen
Jiabao as China’s Premier next March, said he focused instead on three sets of data –
electricityconsumption, rail cargo volumes and disbursement of bank loans.
If Mr Li’s assessment is correct the Chinese economy is in a lot more trouble
than headline GDPfigures have indicated until now.Less closely watched economic data released in recent days, including figures for electricity, railcargo and bank loans, have all shown a steep drop in activity that appears to have caughtpolicymakers by surprise.
China’s GDP statistics are only released every three months and in the first quarter of this year they
appeared to show a continuation of the gradual decline that has been under way for the past year.An 8.1 per cent expansion in the first three months from the same period a year earlier was a cleardeceleration from 8.9 per cent growth in the fourth quarter of last year but it could hardly be
considered a “hard landing” for the high
-flying Chinese economy.Following this relatively strong reading, most analysts and government officials declared that growthhad bottomed out in the first quarter and the rebound would begin in April.
-side analysts and Chinese officials wanted to believe the story that this was just a little dip andthe
economy would come roaring back,” says Patrick Chovanec, a professor of business at Beijing’selite Tsinghua university. “But those forecasts were mostly a triumph of hope over reason.”
 China's electricity production
China’s electricity consumption in April hasn’t been published yet but electricity output increased
 just 0.7 per cent last month from a year earlier, compared with a 7.2 per cent increase in March andan 11.7 per cent annual increase in April 2011.Rail cargo volumes in the first few months of the year increased by low single digits or about half thepace they were growing this time last year and banks extended far fewer new loans than expected.
“China’s been riding an investment boom over the last three years that everyone recognised was
ustainable and now we’re seeing what unsustainable looks like,” Mr Chovanec says. “The
unravelling of this investment boom is happening with nothing to replace it and that means China is
in store for much lower GDP growth than we’ve become accustomed to.”
 Much of the current slowdown has come from the slumping real-estate market, where governmentefforts to rein in a credit-fuelled bubble are starting to look a little too effective.
Investment in real estate, which directly accounts for about 13 per cent of GDP, has droppedprecipitously in just the past few months, with construction of new residential floor space falling 4.2per cent in the year to April from the same period last year. That compared with growth of 5.1 percent in the first two months and 16.2 per cent growth in new starts this time last year.A 51 per cent drop in sales of Chinese bulldozers in March from the same month a year earlierreinforces the picture of plummeting construction.But the slowdown is coming from more than just a downturn in real estate.Chinese exports and imports in April were much weaker than predicted, with imports expanding just0.3 per cent from a year earlier, compared with the average analyst forecast of about 11 per centgrowth.Leading commodity imports slowed sharply while industrial machinery imports fell significantly,
indicating a “worrying downturn in industrial investment”, according to Stephen Green, aneconomist at Standard Chartered. “In the absence of further policy easing, we expect growth to
inue to slow for the remainder of the second quarter,” he says.
 Many analysts believe the Chinese government has already waited too long to stimulate the slowingeconomy. The purge of Chinese leader Bo Xilai last month and the resulting political turmoil is onereason why Beijing has not acted sooner but some economists say its options for boosting growthare more limited than in the past.In response to recent dismal data, the central bank on Saturday cut the portion of deposits thatbanks must hold in reserve to encourage more credit to flow into the economy.But the huge flood of easy credit and government-backed investment unleashed after the globalfinancial crisis has left Beijing with limited firepower this time round amid concerns about resurgentinflation and bad loans at the state-owned banks.As he prepares to take office next year, Mr Li must be hoping his assumptions were wrong and that
China’s GDP figure is the more accurate reading. Otherwise he may be faced with a deteriorating
situation that he has relatively little power to address.

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