Times of change for China

Thousands of party members were accused of corruption in 2013. President Xijinping is taking the fight against corruption seriously. The sheer volume of cases is impressive. This fight against corruption is not a very new development, but new is the fact that even the highest party functionaries are not safe anymore.

It remains unclear if Xijinping is using this fight also for his own agenda, to get rid of his political adversaries. The following years will show if Xi can be remembered for cleaning up and improving the economic environment.

Overall China is currently in a period of transition. The fight against corruption is causing a lot of commotion and wide spread reforms are being enacted. These reforms will take time, but a transition of the Chinese economy will happen.

A shift to a more consumption driven growth will be necessary. But also the environmental living conditions and the rule of law have to be improved if China hopes to attract global firms and foreign direct investments.

The basic conditions and potential for economic growth remain intact. Export driven growth currently remains sluggish. Also China remains rather insular and fails to integrate regionally and globally. Territorial disputes with most of its neighbours upset regional governments and hurt international trade. Japan is outpacing China in Asia with outbound investments, while China is busy with internal reforms, internal unrest and border disputes.

Cost are rising fast in China, labor disputes and questionable decisions of local labor authorities increase the overall cost of manufacturing. Times are tough, prices and factor cost are rising. It remains important to find new sources of income and watch the details even more. Keep an eye out for trouble spots and insist on due diligence in your China operations.