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Managing China’s Political Challenge

Business, China, Company Strategy, Economics, Polyolefins
By John Richardson on 02-Jul-2012


By John Richardson

Getting on with politicians is always pretty useful for doing business anywhere.

And in China right now, it is a case of working key relationships with the right set of senior politicians who are set to take control of the Politburo later this year, after the once-in-a-decade leadership transition has taken place. Xi Jinping (see picture on the right) is, for example, expected to become the country’s new president.

It is also important to be aware of the political sensitivities surrounding the leadership transition, and to be supportive of government policies that are likely to remain in place regardless of who takes charge of the Politburo.

Chemicals and polymer companies need to not only be successful in working the politics themselves, but must also align their sales and marketing efforts with the right set of customers. This was evident from a discussion the blog held with a senior polyolefin industry executive.

“There is a group of converters run by people who moved off the land in the 1950s-1960s and attended university, thanks to educational reforms,” he told us.

“They started out life with very little and now they have built absolute fortunes – some of them are literally billionaires.

“They have been told, in the clearest possible terms, that they must give back to society in order to help keep the Communist Party in power.

“This involves visiting their rural home towns in order to act as role models, to show people ‘this is what can be achieved under the current system’. They are also required to donate money to fund local schools, infrastructure etc.

“These companies are successfully playing the game and, as a result, receive discounted land, tax breaks and other financial benefits.”

The owners of these companies, in order to win government support, must also guarantee that they won’t move their wealth offshore to Hong Kong, Singapore or elsewhere, he added.

“Capital flight has become a major concern of the central government. Many of the super-rich have been shifting their wealth overseas because they are worried about where their relationships will stand after the leadership transition,” he said.

Surveys released last year by rich list publisher Hurun Report and Bain & Co, the management consultancy, both estimated that 60% of about 960,000 Chinese people with assets of over Rmb10m ($1.6m)) had already begun the process of emigration or were considering doing so.