What the heck’s going on in China? Since the Third Plenum last November it’s been clear something big is underway; but what?
In the paper I’m highlighting this week Professor Barry Naughton, the So Kwanlok Chair of Chinese International Affairs at the Graduate School of International Relations and Pacific Studies at the University of California, San Diego has a go at explaining what’s afoot.
[Professor Naughton has kindly agreed to the full paper being posted and you can access by clicking here Deepening Reform – The Organization and the Emerging Strategy]
What he finds (disturbing for market folk who are said to hate uncertainty) is a ‘..broad and complex political agenda, characterized by deeply contradictory elements.’ Oh dear. Moreover ‘..there is not enough information available to outsiders to allow any of them to impute simple coherence to Xi’s program… [And] contradictory elements of Xi’s agenda will ultimately turn out to be just that: contradictory.’ Oh very dear.
At the center of this strategy is the newly created Deep Reform Leadership Small Group (DRLSG) headed by Xi Jinping which had its first meeting January this year. This group has promulgated six major sub groups which are dealing now with 336 initiatives. The most important sub group is that dealing with economic matters and is only one of two groups whose leaders have been identified. The good news for investors is that the very capable Mr. Liu He (http://www.chinavitae.com/biography/Liu_He%7C1291) together with NDRC head Mr. Xu Shaoshi (http://www.chinavitae.com/biography/3973) are in charge. The bad news is we have no idea what any of the 118 initiatives they’re responsible for are?
As if this weren’t confusing enough by February this year every single province had announced the formation of their own DRLSGs and since then a plethora of these have been created by other government agencies such as SASAC and a number of SOEs. In all, Professor Naughton believes there may be 800 or so DRLSGs now at work.
‘The strategy is explicitly to have many items under discussion simultaneously, in many different agencies.’ he notes and cadres will now be assessed on their ‘..ability to generate reform initiatives that appear to be bold, innovative, and effective..’ [Not something a lot of them have a reliable track record in of course?]
The Professor is big enough to admit an error in earlier analysis in which he was waiting for top-down clarity. He now reminds us ‘Perhaps outside analysts should have expected a messy, disorderly process like this, since this is the way change has usually come to China.’ His parting words though are unalloyed good news ‘China’s economic reform is not stalling out; indeed, it is gaining momentum.’
That’s good news of course; but until investors get a better sense of how, when, where, and to what extent this will all impact them caution will continue to be the default setting characterizing China investment decisions.
Er, Happy Sunday?