Dissecting the National People’s Congress: The PLA and Independent Innovation

In the Hutong

Looking for the burnout cream

1641 hrs


Even the most focused minds and incisive bladders must collapse under the weight of a 15,000 word address, and apart from our hyperlinked and multitasked MTV attention-spans, we in the West lack the tolerance for protracted oratory. We think, my Lord, if Lincoln could move a nation with 272 words in the Gettysburg address, what possible good could come of much more?

By now, China’s leaders know this, and I’ve developed a theory that they intentionally structure their speeches to hide the good stuff in the back half. So when I got the text of Wen Jiabao’s 2009 Report on the Work of the Government (i.e., The State of the Nation with Chinese Characteristics) I went straight to the back.

And I was not disappointed.

The Army’s Buried Lede

Hidden there, not far from the end, was an interesting little piece that grew in significance over the past week.

“In the coming year, we need to make our army more revolutionary, modern and standardized, focusing on enabling it to fully carry out its historic missions in the new stage and in the new century. We will strengthen ideological and political work in the army. We will effectively transform our military training based on mechanized warfare to military training for warfare under conditions of greater IT application, and continue to enhance the army’s ability to respond to multiple security threats and accomplish a diverse array of military tasks. We will modernize weapons, equipment and logistics support across the board. We will improve defense-related research, the weapons and equipment production system, the military personnel training system, and the army’s logistics support system that integrate civilian with military purposes and combine military efforts with civilian support.

[Emphasis mine]

There are two points of interest in this brief but important paragraph that are worth noting which, when related, speak to the future of China’s technology industries.

Information Warfare by Any Other Name

First is China’s plan bring the PLA into the 21st century, easing the emphasis on mechanized forces that has guided global military thinking for the past 90 years, shifting instead to an approach with a greater emphasis on information technology. The details of what exactly this means is unclear. There are few aspects of modern warfare that are not suffused with chips and networks, and “greater IT application” can mean anything from computers in tanks, to the ability to disrupt the information infrastructure of other militaries and nations, to the emerging concept of “network-centric warfare.”

I’m betting that China will dive into all of the above.

Mind you, the change will not happen overnight. Even if it seeks to leapfrog the U.S. and other military powers, the PLA like most armies is led by men and women who think of war in terms of infantry assaults, tank battles, and missile attacks. These folks will not be anxious to surrender the more visible (and intimidating) proofs of military strength: after all, armies (and navies, and air forces, and space forces) will always need to bear a nation’s credible threat of physical destruction.

Premier Wen’s statements are, however, a clear message to the leaders of the PLA that while they will get upgraded toys in the near term, the PLA’s destiny is to become a force capable of winning battles without firing a shot.

Getting to the PLA of Tomorrow

The implications for China’s technology industry should be obvious in that first bolded sentence, but that’s not enough for Wen. Two sentences later he hints further at his vision for a new Chinese military industrial-complex, noting that defense related R&D, manufacturing, and “the integration of military and civilian purposes” are also at the core of China’s vision for its military.

Now, I emphasized that last bit because by itself this is an important policy statement, but in combination with the IT-led direction of China’s military, it points to more than just military procurement policy but the future of China’s technology industries.

Bear with me.

When it comes to modernizing the PLA, China has a choice of developing its own technology or buying from others. That choice is going to go away. In most cases, China will be largely left with having to develop its own.

First, the number of nations willing to sell military technology to China will decline, with countries ratcheting back sales either because they see China as a rival in the defense business (Russia, maybe France), they see China as a potential threat to themselves or an ally (United States, Japan, India), because Washington doesn’t want them to (Germany, Britain, and Israel), or because they don’t have anything to offer Beijing (most of everyone else.)

Second, the Central Military Commission (China’s combined equivalent of America’s Joint Chiefs of Staff and the National Security Council) will be unwilling to leave control over critical national defense systems in the hands of foreign nations or foreign companies. This is understandable: the United States, Russia, and a dozen other countries operate under the same principles.

Third, some intelligent and opportunistic policy makers in Beijing will realize that if the country invests in developing its own technologies, the entire exercise strengthens the country’s civilian commercial sector. And this is where Wen’s throwaway comment about “the integration of military and civilian purposes” gets interesting.

It is no secret that the United States’ much-vaunted technology industries were founded on innovations that came from projects funded by the Department of Defense. In effect, America’s aviation, aerospace, computer, electronics, software, wireless communications, and the Internet sectors owe much of their global success to the breakthroughs and profits brought by defense contracts.

By all indications, the Premier seems to be pointing China in a direction where it, too, will pursue defense spending with a twin agenda – a more secure China, and a technology industry heavily fertilized with profitable defense projects. And China would not only be wise to follow America’s lead, they would be within their rights – the WTO makes wide provision for protectionist practices in industries deemed vital to national security and defense.

The World is Theirs

There is a qualitative difference between dumping a lot of money onto Chinese tech researchers and imploring them to go forth and innovate, versus giving them a contract to fix a specific problem or develop a specific system. At the very least you get a product out the back end. If you are lucky, you get something that works for the military, and if you are really lucky, you wind up with a development that has huge civilian potential.

Just one example of many: Boeing’s entire commercial jet airliner business owes its existence to a set of technologies created to build the largely-forgotten B-47 bomber. That one project begat the prototype for the Boeing 707, which begat the hugely popular 727 and 737, and the rest is history.

It is easy to see how the path from a few high-tech defense projects to the creation of global tech powerhouses may not be a smooth one for China. But one only need look at companies like Huawei to appreciate that the more robust China’s defense industries become, the more of these sorts of international competitors will emerge from the murk of military work with competitive – and perhaps innovative – products.

Caveat Inventor

I have said elsewhere that China will try to forge its own path as it seeks to create an economy based on innovation. I expect that part of that model will involve the peaceful application of technologies created for the purpose of national defense.

But I also know that I would be naive if I believed that China would steadfastly insist on creating its own military innovations when it would be easier, faster, and cheaper to “borrow” those created elsewhere. The pressure for results and the urgency of the goal will cause many companies to take what could be politely called “R&D shortcuts.” This is to be expected – history has proven that an uptick in industrial espionage is a natural side-effect of the emergence of a new world power, particularly in the case of one still wrestling with the concept of intellectual property rights.

An pound of prevention is in order. Those companies with technology to protect would be doing themselves – and ultimately China – a great service by recognizing the potential for industrial espionage and taking aggressive measures. You get to keep your technology, and China enjoys the deeper benefits of doing the basic spadework that genuine independent innovation would require.

Seven Reasons for the Coke-Huiyuan Epic Fail

In The Hutong

Having a Coke and a smile

1911 hrs.


Just after the Ministry of Commerce announced that it had rejected Coca-Cola’s bid for Chinese juice-maker Huiyuan, I got a message from a very astute friend of mine who noted “that deal was dead the minute it made the headlines in the South China Morning Post.”

We are going to hear a lot of hindsight-laden “I knew it was going to be rejected” statements in the coming days. So let me start by stating for the record that this will at first sound like one of those posts, but the that what I really want to do is explore (with the full benefit of hindsight) why this deal may have been killed, in the fervent hope we can learn something at Coke’s expense.

It Sounded Like a Hard Sell at the Time

A momentary slide into the “I told you so” zone.

Not long after this deal was announced, I noted in this post that this was going to be a rough sell for Coke in Beijing. Apart from the threat of the deal falling afoul of China’s shiny, new, and not-yet-tested anti-monopoly law, I said that Beijing has over the years actually made its current policy on FDI rather clear. Looking at that policy, it was fairly clear that the deal would have a difficult time passing muster with the government. and that Beijing might relish an opportunity to say “no.”

Rather than suggesting the deal was DOA, however, I noted that Coke had best kick a communications program into gear to start building support for the deal, because doing so would be their only hope in getting past the barriers they faced.

“Whether this deal succeeds, then, has less to do with its considerable business merits or with the law itself. It has much more to do with how well Coke handles the government debates and public discussion on the deal’s merit.

Hopefully, Coke has learned from Carlyle’s experience, and has prepared a case that will convince the nation’s leaders to make an exception to policy and will gain the support of consumers and influential public voices in China.”

Coke, in short, needed to manage the public debate, because regardless of the reason given by the Ministry of Commerce for rejecting the deal, there was actually a lot more stacked against Coke in its bid for Huiyuan. I count at least seven.

Reason One: One Man’s Market Leadership…

The first reason is the one the government gave, that the deal would violate the spirit of section 23 of the Anti-Monopoly Law, which is appears to be designed to ensure that a single player does not become so dominant as to be able to dictate market terms. As the Ministry of Commerce noted, their concern was that the deal would hurt small local players, drive up the consumer price of juice, and limited consumer choices.

Market share figures are painful to discern in most markets, and in China, where data flows like concrete doesn’t, the numbers are much harder to pin down. As best as we can tell, Huiyuan as market leader holds a bit over a third and possibly as much as 42% of China’s estimated $10 billion market in juices and nectars. That’s a pretty dominant position in a fragmented market.

Coke, for its part, is number two with about 10% of the market. If we use those figures, Coke would have owned somewhere around half of an otherwise fragmented $10 billion market. Does this count as a “monopoly” in the classic economic sense? Probably not.

But without other strong players to act as a counter (if Coke was #2 with 9.7%, the next biggest player would have held much less than 10%), you can see that the government was concerned about allowing the creation of a company that would have the brand, manufacturing, and distribution muscle to dictate market terms.

Would that concern have been enough by itself to derail the deal? Maybe. But there were other factors involved as well.

Reason Two: Not Our Kind of FDI

China’s foreign direct investment policy since the country began its “reform and opening” process three decades ago has been to create laws and administrative regulations to channel the investment into the sectors and vehicles where China needed it most. The policy has not changed, but the means of the channeling – and the government’s general attitude toward FDI – have.

As Steve Dickinson of Harris & Moure noted in an article unrelated to the deal a week before it was announced, the policy may be implicit, but it is clear:

“• Foreigners are free to invest in China through WFOEs [wholly-foreign-owned enterprises] or JVs [joint ventures] in the areas of investment classified as permitted or encouraged in the current Catalog for Guiding Foreign Investment.

• Foreigners are permitted to purchase small established Chinese companies where the government is too busy to be concerned with management of the small company

• Foreigners are permitted to purchase large established Chinese companies suffering from financial problems, provided the foreign purchaser will restructure the company and assume the company’s obligations to workers and creditors.

• Foreigners are permitted to acquire a minority interest in large and successful Chinese companies, provided such investment will provide collateral benefits in the form of technology transfer or access to new markets.

• Foreigners are not permitted under any circumstances to purchase a majority interest in a large and successful established Chinese company.”

I can’t speak to the first issue, but it seems fairly clear that the Coke-Huiyuan deal failed to qualify under the other four.

This might have actually been the deal-killer, but since none of this is written down anyplace, it was easier to cite the Anti-Monopoly law.

But wait. There’s more.

Reason Three: Hands Off the Brands, Boys

An unwritten goal of China’s industrial policy is the creation of leading brands that will not only lead to a healthy, stable market at home, but also form the basis of a bevy of global Chinese brands. Even though candidates arise from time to time, China’s enterprises are still in the early stages of creating international markets.

Huiyuan, however, was a better-than-average candidate, with a leading position at home, smart marketing, and an brand that consumers associated with quality and purity. To have a potential champion gobbled up by a foreign company before it even had a chance to go abroad was probably too much for China’s leaders to stomach.

Which is probably the reasoning underlying China’s restriction on purchasing a majority interest in a “large and successful established” Chinese company.

Reason Four: What We Have Here is a Failure to Communicate

As my former colleague and frequent lunch companion Imagethief noted, public sentiment was probably not too terribly in favor of the deal to begin with, and things went from bad to worse as allegations came out that Coke’s people were trying to quash criticism of the deal.

A core rule of public relations is that you don’t try to stop journalists or others from trying to criticize your company because that effort then becomes a story, and you lose all credibility. Now, this rule is often ignored in China, in particular by Chinese companies, who use all kinds of creative and interesting tactics ranging from calling the government, to placing (or withholding) advertising dollars, to outright paying the reporter in order to try to keep negative stories about their company out of the press. Some foreign firms, sadly, have decided that the best thing to do in Rome is wear a toga, and so have picked up the practice.

Whether or not Coke actually did any of these things is not the point – the perception is that they did. That perception was built atop public sentiment that appeared to be skewing neutral to negative on an issue where what Coke needed was widespread support.

Coke failed to realize that it is now a truism that foreign companies cannot hope to successfully test the limits of government policy unless that effort appears to have widespread support – not just among China’s elites, but increasingly among the broader public as well.

Few companies will remember that, I’m sure, but the wiser heads among M&A advisors – investment banks, attorneys, and accountants – will realize they need to make room at the table for someone who understands how to win in the court of public opinion.

Reason Five: Morning After Syndrome

Speculation has been rampant of late that Coke may well have been looking for a way out of the Huiyuan deal long before it was dealt its regulatory death blow. Coke, for its part, denied the rumors, and we may never know the truth.

But less than two weeks after the announcement, the U.S. government decided not to rescue the beleaguered Lehman brothers, setting off a chain of events that immediately altered the priorities of companies around the world. Certainly if I were sitting at Coke headquarters in Atlanta, I’d be worried about whether I could afford to part with $2.4 billion in cash right as world credit markets were drying up and consumers were rethinking their spending habits.

Even if Coke lost a little of its ardor for the deal, that might have been enough for the company to give less than its full effort in trying to gain approval.

Or, indeed, it might have been enough for the company to become completely ambivalent about it. Given the challenges they faced, that might have been enough to weaken Coke’s chances.

Reason Six: Kindergarten Dynamics

There is a school of thought that Coke’s bid was sabotaged before it happened, not by either company or the Chinese government, but by the U.S. government when it blocked the acquisition of Unocal by CNOOC, or when it blocked the purchase of 3Com by a group led by Huawei. The belief is that this rejection was a tit-for-tat, China treating a U.S. company in a manner to which Chinese companies have become accustomed in America.

This is not unlikely. China is a big fan of reciprocal behavior in its international relations, even raising visa charges for citizens of countries that have raised the cost of a visa for Chinese travelers.

Certainly there must have been a bit of that sentiment in the smoky room in Beijing where this matter was decided. How much of a role it played we will never know.

Reason Seven: The Global FDI Problem

Last June the Council on Foreign Relations published a special report, Global FDI Policy: Correcting a Protectionist Drift, in which the authors quantify a decided chill in the past several years by a number of countries toward foreign direct investment. While the authors (a Carlyle executive and a distinguished academic) might well have turned the report into a China-spank, the report is remarkably data-focused and even handed.

What they quantified – before the world lurched into its current state – was a decided tendency by nearly all of the world’s major polities to restrict foreign direct investment. The biggest culprit in the report was the United States, but the authors note that there is evidence of this trend worldwide.

The problem is that unlike trade, there is no global policy protocol around cross-border direct investment and acquisitions, kind of like the situation we had with international trade prior to World War II. And frankly, this is no time for countries to be turning off the tap, especially (as the authors note) local affiliates of foreign firms on average deliver greater economic benefit to host countries than local firms.

The Coke-Huiyuan deal was taking place in an global FDI policy environment that is starting to sour, and may come to be emblematic of the need to raise the matter of FDI to a global intergovernmental level – once the banks are sorted out, of course.

The lesson here is that the problem of FDI policy to an extent transcends Coke, Huiyuan, China, and the United States, and that those issues probably played some role here.

Making it Better

The above list is by no means balanced in terms of the relative importance of the factors, and it is by no means complete. Taken together, though, they underscore that Coke had to climb a cliff on this deal, and they will not be the last who face such a political escarpment.

But as China extends its policy fence around those companies and industries it wants to keep in Chinese hands, there are some lessons to be drawn from the above.

1. We need to begin with a clearer idea for how China defines a “monopoly,” so that we either avoid deals that test that definition, or we recognize the risk and seek to mitigate it intelligently yet aggressively. That definition will change on a case-by-case basis, based on the industry, the intended target, the buyer, and who is asking the questions.

2. The FDI policies that matter may not be written down, but they exist, they evolve, and they are ignored at one’s peril.

3. Healthy companies that may one day become global Chinese brands are not good targets. Sickly companies that could blossom under better management, with capital injections, and with a global owner are much safer. Of course, they bring their own problems, but China’s government wants value-add from foreign investors, not just a fat check.

4. Any acquisition of a local firm by a foreign company demands a communications effort directed at both the general public and the policy making elite that makes a logical, intelligent, and sensitive case for the purchase. The bigger the buy, the better you need to be at the communications.

5. Don’t ever let up or appear to hesitate.

6. International relations matter in business, and especially with M&A. Companies need to lobby their home governments to be as open with FDI as they are with trade, because the alternative is a deteriorating global FDI environment with companies caught in the middle.

A Final Note

As I said in my September post, I am no fan of mergers and acquisitions. I think they burn management attention and corporate capital, they are often used as a substitute for innovative strategy, and they rarely deliver the benefits promised. But I also recognize I am spitting in the wind – there is going to be a lot more of this activity in the coming years, particularly as Chinese companies step abroad.

The best we can do is work to reduce the friction of the process. As more about these events comes to light in the coming weeks, It is incumbent on those of us whose work touches M&A in China to learn whatever lessons we can. The next one will probably not be any easier.

Another Tech Iconoclast

Starbucks Pinnacle Plaza, Houshayu Village

Ahh, spring

1025 hrs.

Many of us non-Chinese (and a healthy percentage of Chinese returning from abroad) indulge ourselves with the conceit that we are somehow helping to build a bridge (or, really, many bridges) between China and the rest of the world. And to be fair, some of us are doing a better job than others.

For his part, Ken Carroll of Chinesepod has discovered a new and brilliant way to do so, and Patti Waldmeir of the Financial Times does a profile on Ken and his work that I found inspiring on this chilly early spring morning in Beijing.

Innovation doesn’t just happen in labs, and it doesn’t always need mountains of capital or government edict.

Just a good idea, strong execution, and a little word of mouth.

China’s Auto Reform: One Foot on the Gas, One Foot on the Brake

In the Hutong

Good grief, March already?

2111 hrs.


The Associated Press is reporting that we can expect China to undertake a reform of its largely state-owned auto manufacturing sector. The plan apparently calls for China to winnow the number of domestic auto manufacturers from 14 down to 10.

No, Not THAT Big 10…

The AP report refers to a Chinese “Big 10” made up of a top tier of auto makers with the capacity to make 2 million vehicles or more (Shanghai Automotive Industry Corporation (SAIC), First Automobile Works (FAW), Dongfeng Motor, and Changan Motor) and a second tier of six manufacturers with capacity of around 1 million cars per year.

First, some perspective: a million cars a year is not small, but Ford and GM will probably make around 9 million vehicles apiece this year, so “Big 10” is still relative.

Second, in an environment where the auto business is so difficult that even Toyota is starting to sweat, one might ask whether China is being a tad cautious in reforming the auto business. It would seem a tad ambitious to envision a global market with sufficient room for ten Chinese car brands.

In truth, China is being cautious about consolidating the country’s auto business, and for good reasons.

Slow and Steady

The first and most important is the geographic dispersion of China’s car makers, and the political challenges that implies. Unlike the U.S. car industry, which was traditionally concentrated in the state of Michigan, China’s automakers are scattered around China.

Closing one – even if it is just eliminating the brand and keeping the factory – means favoring one region over another, and that is sensitive in an economy so careful with its local companies that domestic protectionism remains a major challenge to the country’s development.

Edmunds Inside Line notes that if local governments want they can derail the process. Even if they do, that derailment won’t be permanent – the central government will get its way, but the question will be the cost: each closure is going to demand negotiation and horse-trading among the governments, meaning more costs and delays.

Second, China does not want to undertake consolidation at the expense of market share. Foreign makes still take up over 60% of local vehicle sales by volume, and closing down too many local companies too fast will mean that foreign marks will gain ground. Given China’s stated intention to create global auto marques of its own (rather than just being the factory for European, Japanese, Korean, and American brands.) Given that the ability of the remaining 10 automakers to increase capacity is limited, best to go slow.

Third, all of the industrial policy in the world does not make up for solid market performance. It is still too early to tell which automakers will be able to make the difficult shift into international markets and then be able to build that into global leadership. Picking candidates, not winners, is the wise approach now.

Upshift

Finally, there are the intertwined issues of technology and the environment. And for us here in the Hutong, this is a big one.

In the coming decade, China’s auto industry is going to have to shift away from petroleum-fired internal combustion engines to something else: The country’s air quality will not be able to take hundreds of millions of cars running on unleaded; simply fueling those cars would put China into a geopolitical face-off with the U.S. and Europe; and the global car manufacturers who remain after the global downturn will be producing their own low-emission or zero-emission vehicles in China.

That shift is going to mean investments so large in technologies so complex that it may force a rethinking of the entire automobile industry. The logic of a single vertically-integrated manufacturer starting with steel, plastic, and rubber and churning out cars may not hold is the industry makes its leap.

As such some companies in China’s auto industry may well elect to specialize either in assembly or components, opening the door for one or more of the current players to ease their way out of making cars and into supplying China’s remaining brands with motors, batteries, fuel cells, bodies, or other major components.

If that happens – and I suspect that at least in the case of second-tier brands it might – it makes more sense to allow that specialization to evolve and chivvying it with the visible hand of government, rather than making those choices now. The coming years, in fact, are likely to involve the government making the case to some manufacturers move to making parts and components.

Taking a “slow-cull” approach to reforming the industry is the wise approach for China’s policy makers. The nation’s auto industry will be reformed in stages rather than with the single stroke of a pen, and the speed of those reforms will depend not only on market growth and global finance, but on the demonstrated ability of China’s automakers to withstand the successive waves of change they will face in the coming years.

Ten Reasons We Are Watching the National People’s Congress

In the Hutong
Rising Peacefully
1941 hrs.
Now that we are into the third month of the year, the time has come for the annual pageantry of pomp, politics, and propaganda colloquially known as “liang hui,” the twin meetings of China’s legislature, the National People’s Congress(NPC), and its advisory auxiliary, the Chinese People’s Political Consultative Conference (CPPCC).
The meetings are met with a fair amount of cynicism, particularly among those of us raised in democracies where, even if our legislators accomplish little more of value than the liang hui, at least they manage to do so without messing up the traffic with thrice-daily motorcades.
Yet while it is not unfair to categorize the NPC and CPPCC as “rubber-stamp” bodies, there are years when it is worth stopping to listen to some of the speeches and taking the time to absorb the coverage. And this year is one of those years.
Here is what we will be listening for in the Hutong:
1. Stability and Harmonious Society: I suspect we will get a healthy dose of this, but what will be worth listening for is specifics on welfare, employment, and social security programs for rural citizens, laid-off factory workers, and retired cadres.
2. Independent Innovation: This little chestnut was pretty hot a few years ago, but has faded into the background as the government faces the darkening horizons of the global economic crisis. While there are more urgent concerns, it will be interesting to see whether this has fallen off the radar, or if any new and significant measures are planned in this area. If the importance of independent innovation has receded, this will imply continued opportunities for foreign innovators, but continued problems defending IPR.
3. Infrastructure: Look for indications on how the central government is going to channel and manage all of the funds for infrastructure investments. I’ll be looking for mentions of specific high-profile projects, a new agency to manage them and their expenditures, and some indication that employment is a focus, not just spending a lot of cash.
4. Financial Sector Reform: In the wake of what has transpired on Wall Street over the past year, it would be hard to justify reshaping China’s financial sector to look like that of the U.S. Nonetheless, China’s banks, insurance companies, bourses, and brokerages face their own challenges after 30 years of rapid growth, and the global financial crisis is a signal that it is time to look for and address problems rather than wallow in schadenfreude.
5. State-Owned Enterprise Reform: Hard times justify hard measures, and it is likely the coming 18 months will see Beijing compelling the restructuring of several industries dominated by state-owned enterprises. The effort will be to strike a balance that will allow for competition while creating national champions through compelled mashups. The auto industry will almost certainly undergo a forced winnowing from 14 passenger car makers to 10 (which I’ll address in a post tomorrow), and we are betting on another round of consolidation in the airline business and the steel industry. The question will be what other sectors will come under the knife, and our ears are perked up for clues.
6. Drought Relief: The environment – specifically air and water pollution – will be a major theme, but a larger problem that looms is the issue of the drought in Northern China. Beyond the general challenges facing rural China, we expect some discussion of water supply, if not in one of the work reports, then in some of the side sessions.
7. Taiwan: For the first time in recent memory, Taiwan is likely to be a feel-good issue at the meetings. A quiet movement is underway in Taipei to build on the newly-established air and sea links between Taiwan and the mainland with what would amount to a free trade agreement. This is a touchy issue in Taiwan, so it will be interesting to see if – and how – Hu Jintao, Wen Jiabao, or any of the other leaders discuss this.
8. Defense: In the wake of Sino-US military discussions and China’s deployment of naval vessels on anti-piracy patrol off of Africa, we will of course be watching for acknowledgement of closer cooperation between the two nations in addressing mutual security issues. More important, however, is whether China’s economic stimulus will extend to spending in “dual-use” industries like aerospace and shipbuilding.
9. Media: I am not expecting 2009 to be a memorable year in reforming and opening China’s media sector: the political sensitivities at the nexus of the global financial crisis and the 60th Anniversary of the founding of the People’s Republic make it far too sensitive. What we will be listening for is any mention of the media sectors at all. I am hoping there will be none: no news is good news here.
10. Peaceful Rise: China made more progress in its strategy of pursuing a “peaceful rise” in its global stature in 2008 than it could have dreamed of a year ago. It will be interesting to hear whether that is sustainable, whether China will allow itself to mirror the US Congress’ protectionist “buy American” rhetoric, or instead will take the high road and position the PRC as the guardian of free trade.
For decades, the Liang Hui have had only needed to address domestic audiences, because they were dismissed by others as ceremonial and ultimately irrelevant. That has changed, and ever since former Premier Zhu Rongji began holding post-Congress press conferences for the global media, China has begun to use the occasion to send messages abroad.
This year the world will be watching the proceedings with greater interest than ever. The leaders must know that, and it will be fascinating to see if anything in the two-week session changes as a result.