January, 2015 Executive Summary

 

 

The year 2015 started with mixed news on the economy—confirmation that it slowed in 2014 and that debt levels rose, with China’s leaders sounding like they want to be cautious relative to spurring growth through debt. There were a couple of small yet positive developments relative to Economic Liberalization, particularly as regards free trade zones. In the Law & Politics section, there was a negative development relative to internet access and an interesting story relative to Alibaba clashing with the government.

 

Below are the main points of the stories in our January, 2015 newsletter.

 

Economy

 

China’s leadership lowers expectations for growth

Chinese leaders emphasize that they prefer slower economic growth to continued growth in debt. Other signs indicate that actually curbing spending and debt could be a challenge.

 

Accelerating investments, but not “stimulating” the economy

$1.1 Trillion spend plan announced.  Supposedly not new spending.  Raises issue of whether China can really back off old spending habits in the face of a slowing economy.

 

Debt still growing, but momentum slowing

Debt is still growing as a percentage of GDP.  But the rate slowed in 2014.

 

FX Rates and Reserves Falling

More signs of a “new normal” for foreign exchange in China as both rates and reserves fall in 2014. Year ended with China supporting the RMB to prevent more rapid devaluation.

 

Liberalization

 

Free Trade Zones gain momentum

Recent government actions indicate that the FTZ concept is gaining support and momentum which could be a huge lift for liberalization over the long run.

 

Tech companies and financial system reform

The government seems to be keen on getting some of China’s biggest and most high profile private enterprises, particularly those in the high-tech sector, involved in the financial sector as well.

 

Private sector brands on the rise

An annual survey of major brands in China reveals that private sector brands are overtaking state-owned brands as the most valuable in China, another sign that liberalization and the private sector are driving China’s growth.

 

Law & Politics

 

Government accuses Alibaba of wrongdoing

A report by a government regulator accuses Alibaba of multiple transgressions including allowing fake items to be sold and taking bribes from vendors. Alibaba reacts publicly and defiantly. The case will be a test of how China enforces regulations, among other issues.

 

China complies with WTO, drops rare earth mineral quotas

US, Europe, and Japan won a case at the WTO against China’s use of export quotas for rare earth minerals. China appears to be complying with the WTO result.

 

Internet access restricted as China targets VPN’s

VPN service was disrupted in January as a government official signals this will continue. The impact of further restrictions on the international exchange of information could extend beyond politics to science, business, and other fields.

 

Other

 

Labor pool shrinks, larger families out of style

For the third straight year China’s working population fell. Despite easing of rules restricting family size, Chinese families are not choosing to have a second child. China’s aging population problem will need more than legal changes to fix.