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From the Desk of the Executive Director

Ken Phillips is co-founder and Executive Director of Independent Contractors of Australia. He is a published authority on independent contractor issues and directs research on related commercial and trade practices issues. Through his numerous articles in newspapers and think-tank and academic journals, Ken is known for approaching issues from outside normal perspectives and is frequently sought out for media comment.

China's slower growth may be temporary

Monday, July 08, 2013

Macroeconomic data from China has economic analysts worried that China has shifted into a lower economic growth phase. This has contributed to a decline in ore and other commodity prices around the globe. In turn, this has resulted in a view (a new consensus!) that Australia’s strong economic position based on the minerals sector is under threat.

But is the apparent Chinese slowdown long-term or temporary? Is it based on a shift in Chinese economic fundamentals or is it a consequence of temporary political fallout?

It’s always dangerous to draw conclusions from limited anecdotes. China is so vast that really no-one can adequately claim to grasp the total picture. But here’s a scenario to consider.

Several unrelated business people operating in different areas in China have fed similar stories through to ICA. Each of the people has been involved in planning and implementing quite significant projects in China for Chinese companies. Over the last few months the projects have been put on sudden, but temporary, hold.

Most experienced Chinese operators report that any private business of any size in China always has strong connections to high Communist Party officials. In many respects the CCP should not be thought of as separate political institution from business, as is the view of political parties in the West. Rather, the CCP and business are one and the same. Business operates through, with and in partnership with the CCP.

The change in top CCP leadership in China, formalised at the March 2013 National People’s Congress, was the most significant leadership transition in decades. What’s now happening is that top leadership change is cascading down through the middle and lower ranks of the CCP.

The process is no different to what happens with significant boardroom change in a major company. Once change is made at the top, change then occurs with senior executives and managers through the company structure. People are dismissed, new managers are hired and positions are shuffled. As this occurs, decision-making through the company slows or is frozen until things settle and the company moves forward again in a new or renewed direction.

If the CCP is thought of as a huge corporation running the business of China, rather than viewed as a Western-style political party, the change in China and the apparent economic slowdown make more sense.

The business people doing work in China who have talked with ICA report that the reason for suspension of projects has been explained to them in just this way. They have been told to be patient and that projects will resume within six months-or-so as the new CCP management structures settle down.

True or not, this scenario makes considerable sense and is worth factoring into considerations. In other words, jumping to conclusions over a Chinese slowdown could be premature. It may pay to hold fire on such conclusions and see where China sits early in 2014.
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