橫琴誌 | HENGQIN RECORD

Alexander Kocsis: The role business can play in Hengqin’s future

Alexander Kocsis is a respected legal and financial professional with a decade of experience in China. He is regarded as an expert on business strategy and is a frequent commentator on Chinese affairs. Because of his deep knowledge of the Guangdong-Hong Kong-Macau Bay Area, Hengqin Record asked him to comment on recent developments in Hengqin. This is the third of three interviews, with a short concluding addition to this week’s question featuring next week.

Henqin Record: What role can business can play in Hengqin’s future?

Alexander Kocsis: Companies that enjoy enduring success have a core purpose and core values that remain fixed while their strategies and practices endlessly adapt to a changing world. The rare ability to balance continuity and change – requiring a consciously practiced discipline – is closely linked to the ability to develop a vision.

Vision provides guidance about what to preserve and what to change. A new prescriptive framework adds clarity and rigor to the vague and fuzzy vision concepts at large today. The framework has two principal parts: core ideology and envisioned future. Core ideology combines an organization’s core values and core purpose. It’s the glue that holds a company together as it grows and changes. Core values are an organization’s essential and enduring tenets – the values it would hold even if they became a competitive disadvantage; core purpose is the organization’s fundamental reason for being.

The second component of the vision framework is the envisioned future. First, a company must identify bold stretch goals; then it should articulate vivid descriptions of what it will mean to achieve them.

Henry Ford set the goal of democratizing the automobile, then told the world, “When I’m through … everyone will have one. The horse will have disappeared from our highways.” It was an imaginative stretch for the time. Unfortunately, the usual vision statement is fuzzy and inspires only boredom. But managers who master a discovery process to identify core ideology can link their vision statements to the fundamental dynamic that motivates truly visionary companies, that is, the dynamic of preserving the core and stimulating progress.

At the 2018 Two Sessions, the Party and government clearly outlined the key economic policy priorities for the next 12 months. Nine key policy buckets are designated throughout the government work reports and they follow directly from Xi Jinping’s report to the 19th Party Congress. These are the government’s nine policy priorities in 2018.

  1. Supply-side Structural Reform

Supply-side Structural Reform (SSSR) is the overarching economic policy framework in China. It has five elements – cutting capacity, deleveraging, property destocking, reducing costs for business and addressing the economy’s weaknesses. Priorities for 2018 include reducing taxes and fees for business, while cutting steel and coal capacity by 30 million and 150 million metric tons, respectively.

  1. Innovation

Making China a “technological superpower” is the guiding star for industrial policy. The government has made no secret about its goals to build a world-class semiconductor industry and dominate artificial intelligence in the coming decade. To support this push, the government is effectively becoming the largest venture capital fund in the world. The immediate priority for 2018 is to do more to attract global talent.

  1. The “three critical battles”

Xi Jinping identified the “three critical battles” for 2018 late last year. These are areas in which top leadership wants to make concrete progress over the next 12 months. They are: addressing financial risks, dealing with pollution and alleviating poverty. While SSSR and innovation are medium-term policy drivers, the “three critical battles” are top priorities specifically for this year.

  1. Deepening reforms

The key reform goals are to strengthen SOEs while also trying to encourage private sector participation in the economy. Xi Jinping’s version of “reform” is not the liberalizing kind. Expect SOEs to continue to be beefed up and consolidated, while the government seeks to improve the private business environment by improving intellectual property rights. Fiscal improvements are also a critical element of the reform agenda, as they will support the push for a more unified and efficient national market.

  1. Rural revitalization

The rural revitalization strategy is a counterpart to China’s urbanization strategy. Rather than solely seeking to move individuals into urban areas on a wholesale basis, China’s leadership wants to make rural areas more enticing places to live through better infrastructure and public services. Rural residents’ land rights will also be extended by 30 years, once each individual’s initial lease expires.

  1. The regional development strategy

Chinese leaders increasingly conceptualize the nation’s development through large regions, rather than along provincial lines. The push toward regional coordination is meant to better integrate swaths of the country, reduce internal barriers to trade and investment and achieve economies of (very large) scale.

  1. Increasing consumption and improving investment

China is still trying to rebalance its economy toward consumption. One key area will be preferential tax policies for purchases of new energy vehicles. In addition, this statement may be promising for some foreign companies, “We will support private actors in providing more services in healthcare, elderly care, education, culture and sports.” However, there are no bold plans for improving investment – the basic plan is to keep dumping infrastructure money into central and western China.

  1. Opening up

China’s leadership realizes that it still needs FDI, especially because China needs to offset its own outbound spending. Because of that, expect some genuine loosening to finally take place, especially in the financial sector. Outbound spending is all about the Belt and Road. On trade, look for the inaugural China International Import Expo to be heavily promoted.

  1. People’s well-being

Better jobs, more entrepreneurs, higher incomes, improved education and implementing the Healthy China strategy – those are the goals in this area. The government and Party are taking them seriously, but don’t expect immediate progress, as these are difficult problems.

* In next week’s Hengqin Record, Alexander Kocsis will break down the “three critical battles” and explain why they are so important to Hengqin.

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