For the past few years, China has been pursuing a new and ambitious state-owned enterprise (SOE) reform program. SEOs are huge in terms of size, yet they only provide 16% of jobs, less than a third of national economic output, and a return on assets of only 2.9%. Hugely inefficient, debt-ridden and responsible for most of China’s ballooning corporate debt, SOEs are a drag on an economy that Beijing wants to transition—unlike past efforts which is about privatization, but just the opposite—from investment and export-driven to services and consumption-driven.
Although China’s official GDP for the first two quarters and industrial growth exceeded expectations, the industrial economy has not yet bottomed out, according to the latest CKGSB study. Led by CKGSB Professor Gan Jie, the study shows that overcapacity remained at a historical high in the second quarter, and product and cost prices continued to rise, while production stayed flat. Meanwhile, the gap between the BSI of state-owned enterprises and that of private enterprises kept widening. The latest BSI findings show that the structural problems of China’s industrial economy remain a significant concern.
Over the past two decades, China’s urban population growth has been higher than in the rest Asia or the world as a whole. Young people are migrating to cities, leaving the elderly and children back home on the farm. So as manufacturing and urban life took off, catapulting China to world-power status, rural China and farming lagged behind. Roughly 86% of farms in China were only 1.6 acres, a tiny fraction of the size of the average 441-acre US industrialized farm and most of the work on these small farms is done by hand by an increasingly elderly population of farmers who now average over 50 years old. But that is starting to change.
China’s economy is facing many problems that are cyclical and also structural. Some economists believe China reached the Lewis Turning Point six years ago, where the growth benefits of rural-to-urban migration dried up and wage costs started to escalate. The growth of the Chinese economy relied very much on its cheap labor—a competitive advantage that has been exhausted. Simply put, “China has come to the end of the period of easy gains in GDP.” It faces two possible paths ahead: the hard road of structural reform and painful consolidation, and the easy road of fiscal and monetary stimulus leading inevitably to further problems along the way.
Over the past 30 years Haier CEO Zhang Ruimin has led the company through several path-breaking business model changes, which have helped the company build a strong brand, grow both organically and through acquisitions, globalize and “get close to the customer”. Zhang is now leading the company through yet another transformation to make it what he calls an “internet-based platform company” made up of extremely responsive micro-enterprises. For the closest parallel, think of a Silicon Valley within a company. In this rare interview, he talks about his management philosophy.
Changing the Chinese social structure may save the country from the proverbial ‘middle-income trap’, says Salvatore Babones, an expert on China’s political economy.
No. Some Pain is Necessary in the Short Run The slow recovery of the US economy and the deep recession in the eurozone have cast a long shadow on the global economy. Given the strong headwinds faced by China’s exporters and the weak domestic demand, many have advocated another stimulus package to arrest the […]