The leadership transition that began last year came to a close at the annual March meeting of the People’s Political Consultative Conference, the advisory body of the ruling Chinese Communist Party (CCP). The new party boss, Xi Jinping, took the reins of government from President Hu Jintao, and Li Keqiang replaced Wen Jiabao as prime minister.

The statements from both the outgoing and the new caretakers of China’s collective leadership signaled a continuing commitment to economic reform. However, no indication of plans were given for a radical shift from the an existing economic model based on state-backed export-led growth to one that emphasizes domestic consumption.

Major administrative reshuffles and streamlining are on the agenda, starting with the restructuring of the Railways Ministry, a behemoth that is to be incorporated into the Ministry of Transport. Xi has launched a new campaign against graft and inefficiency, but he will not directly challenge the vested interests in the state bureaucracy.

The regime’s anti-corruption efforts are unlikely to make a tangible difference for foreign companies operating in China.

The regime’s anti-corruption efforts are unlikely to make a tangible difference for foreign companies operating in China without reforms that enhance the independent power of the judiciary vis-à-vis investigative bodies appointed by the party leadership.

The cautious, incremental opening of markets to domestic and foreign investors will continue as long as domestic conditions permit. The China Securities Regulatory Commission has relaxed the rules on investment from offshore renminbi funds into mainland financial assets. In addition, authorities have also expanded the circle of Hong Kong-based financial institutions allowed to access the renminbi qualified institutional investor (RQFII) program, one of the main channels of inward financial investment.

Limits remain, however. The regulator has put a ceiling on total foreign investment in listed Chinese companies at 30 percent, while limiting individual foreign investors to 10 percent equity stakes.


The PRS Group
About The Author The PRS Group
The PRS Group is a leading global provider of political and country risk analysis and forecasts, covering 140 countries. Based on proprietary, quantitative risk models, the firm's clientele includes financial institutions, multilateral agencies, and trans-national firms.

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