Heaven is high, and the Emperor is far away
This is my favourite Chinese saying. It’s particularly useful when trying to placate a frustrated Ai Group member who can’t understand why the import documents she submitted successfully to Customs in Guangzhou are flatly rejected in Tianjin.
While Beijing sets policy, there are always regional vagaries that can trip up unsuspecting exporters – but that doesn’t mean that Australian businesses should underestimate the impact of China’s leader, Xi Jinping’s, report to the Communist Party congress on October 18. Even with regional interpretations, the main themes of his vision will be implemented across the country with utmost commitment and will undoubtedly have an impact on strategic plans you might have for China.
There has been a flurry of very good articles interpreting the meaning of Xi’s speech. This one from the Lowy Institute is a good start for a quick read that covers the main issues. For context on the significance of the Party Congress and a smart little video reviewing Xi’s last five years, I recommend this article from the South China Morning Post. As a student of linguistics, I couldn’t go past the New York Times analysis, which compares the number of times Xi used key terms to that of his predecessors to gauge the shift in policy focus. Reading the article, I realised that I had already been dealing with the impact of his policy priorities and that members should be prepared for future regulatory changes.
“Great power” 大国 or “strong power” 强国 used 23 times
It is easy to link to this to China’s actions in the South China Sea or the Belt and Road initiative, but they are only two loud strategies. Less obvious is the way China is using institutional engagement to influence international trade rules, apparently keen to fill the void left by the Trump administration. The G20 meeting in Germany was largely seen as a success for Xi, where he passionately defended globalisation and the multilateral trade regime. China’s confidence at the WTO continues to grow with a firm proposal to amend Anti-Dumping laws to introduce concessions for SMEs subject to dumping investigations (many of whom are Chinese). We are also getting anecdotal evidence that China continues its efforts to take leadership positions in international standards setting bodies, something that the USA assessed back in 2013.
Of course, we shouldn’t kid ourselves that China is any less self-serving on trade than the US. China is the world’s largest exporter and responsible for 13% of global trade; any interruption could be devastating to its local economy and jeopardise its anti-poverty initiatives .
“Environment” 生态 used 39 times
China’s air quality problems are well documented and it has been a term used in the past two speeches, so its inclusion would not be a surprise. While we support China in its efforts to improve air, soil and water quality, changes in policy may dampen Australian exports. A significant change to steel production in China will definitely have an impact on Australian export performance. According to an Austrade report in 2013-2014, iron ore accounted for about 27% of goods exports and iron ore exports to China accounted for 17% of Australia’s total export earnings; the market has already moved against iron ore prices in anticipation of policy changes.
However, there are also changes that may impact smaller Australian exporters. China is also the world’s largest importer of recyclable waste material, using low labour costs to undertake the expensive sorting and processing work and using the salvable materials as inputs. Earlier this year China announced restrictions on the kinds of materials it will receive, including unsorted paper waste and PET bottles. In talking with members in this industry, at this stage Australian waste exporters already comply with the new regulations; however, it is rumoured that this is simply phase one of regulatory changes, and future phases will include metals and engine parts. Australian companies with manufacturing facilities in China should also be alert to any changes to local environmental management regulations and an increase in enforcement.
“Security” or “safety” 安全; “Conflict” 矛盾 used 55 times
Xi is not the only world leader promising greater security or safety to his people. However, in this context it may be less about safety for the people and more about security of the people. In March this year I wrote about the changes to China’s Cyber Security Laws, and their potential impact on members trading with China and those with operations in China. This speech does not give any indication of an improvement in this area; in fact, I suspect that as the risk of social upheaval due to increasing demands for a cleaner environment and greater economic inclusion rises, restrictions on data will increase. Any Australian company with operations in China should make themselves aware of their obligations under these laws, including data storage and transfer rules. AMCHAM in China have shared an unofficial translation of the Chinese law, but you may find this KPMG Guide a bit easier to follow. Be aware that many programs are not available to use in China, including Google/Gmail and twitter.
What didn’t he mention?
Terms like Market and Reform didn’t rate very much in this speech. It seems that the Chinese have tolerated as much reform and market volatility as they can handle. This does not mean that there won’t be regulatory changes. The Chinese Government has many levers at its disposal and has demonstrated that it is ready to use them if needed. China will never be a set-and-forget market; it will only reward those companies who are vigilant and alert to constant change. To conclude with another Chinese proverb: “A man grows most tired while standing still”.
How will China’s change in priorities affect your strategy for China? Please share your comments below and start a conversation.
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