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Impacts on MNCs from the 2014 Two Sessions

03 March 2014tag:Impacts,MNCsAuthor: Yuan Associates



     Following the framework laid down during the 3rd Plenary Session of the 18th CPC Central Committee and the Central Economic Work Conference in 2013, the Two Sessions’ primary goal was to channel the party’s political will into results on a national scale by utilizing legal channels and procedures.  Based on the Third Plenary Session of the 18th CPC Central Committee, the Central Economic Work Conference and the 2014 government work report, we believe that the Chinese government will strike a balance between maintaining a stable economy and comprehensively deepening reforms. The economy will progress at a moderate pace, with investment playing the key role in stable economic growth.  Based on these factors, the Chinese government will continue to deepen reforms, focusing on the administrative system, finance and taxation, upgrading of industrial structure, urbanization, opening up, and environmental protection.


     First, the Chinese government set the national GDP growth target for 2014 at around 7.5 percent. This target for economic growth indicates the intent of the communist party to make progress while ensuring stability. This demonstrates that the Chinese government will not be pursuing higher growth rates during this economic transitional period, and that the government hopes to have enough space to deepen reform and make progress on industrial structure upgrades. The Chinese government hopes to maintain moderate economic growth and prevent a slump from an unexpected slowdown of the economy. In tandem with their determination to move forward in several key areas for improvement, the Chinese government vows to continue to comprehensively deepen reforms, push modern urbanization, strengthen environmental protection policies and enforcement, and advance opening-up during the two sessions

     

     Reform and policy adjustment based on rule of law will take top priority for the Chinese government this year.  As reforms are comprehensively deepened, the National People’s Congress’ will take on additional legislative and supervisory powers. On the one hand, governmental activity will be further supervised and restricted to avoid blind and ineffective policies and measures. On the other hand the legislative procedure will see greater transparency and will provide more extensive forms of public engagement including corporate participation, which will offer a new channel for multinational companies to advocate for their interests.

     

     The market will play a “decisive role” in industrial structure upgrades. As one of the top priorities for the Chinese government, industrial structure upgrades will be based on further development of the service sector, integration of informatization and industrialization, and utilization of new innovation platforms for new industries.  However the Chinese government hopes that market competition will weed out weak players and bolster strong ones. The government will encourage corporate acquisition and restructuring, actively eliminate companies that contribute to overcapacity, consume high amounts of energy, pollute beyond acceptable levels, or over-consume natural resources by strengthening market entry standards and restricting production capacity increases. In addition, the government would like to see Chinese private enterprises take an active part in upgrading industrial structure. .

    

     The Chinese government states in the government work report that expansion of domestic demand should be the primary driver of growth, with consumption being key to expanding domestic demand.  Investment, however, will be regarded as the most important means of attaining economic stability.  Major sectors for capital investment in 2014 will include transportation and logistics infrastructure, environmental protection, and public welfare sectors.


     As more and more citizens discuss food security and food safety, as well as environment and national security, ‘safety’ became a hot word during 2014’s two sessions.  Environmental issues, particularly atmospheric contamination, have become a political problem that requires immediate attention from the government.  After the National People’s Congress revises the Environmental Protection Law this year, it is widely speculated that the government will formulate stronger, more coercive policies to handle air pollution,

     

     Other important aspects of reform in the 2014 government work report, such as urbanization and reform of state-owned enterprises were drawn directly from remarks made during the Third Plenary Session, the Central Urbanization Working Conference and other vital congresses. It can be deduced that there is considerable distance between political theories and executable policies.

     

     From a broader perspective, the situation for the Chinese market after the two sessions will remain vague, with many uncertainties and policies that have not yet been executed.  Balanced development for these uncertainties has become a challenge for multinational companies operating in China.  Both the business environment and national treatment for multinational companies will improve as China strengthens the rule of law and increases transparency in the legal system. It is expected that MNCs will enjoy an equal, fair, just and consolidated operating environment similar to that experienced by domestic enterprises.

     

     It should be noted that domestic demands in some sectors will decrease due to a slowdown of economic growth.  Therefore, we suggest that multinational companies be cautiously optimistic about their investment and business development in China. 

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