Macroeconomics

02 December 2013

Why China s reforms matter 

China announced reforms in early November 2013 to ease government control of banking and other sectors, signaling broad shifts in the competitive landscape of the world’s second-largest economy.


In arguably the most dramatic changes to its economy since Deng Xiaoping opened up the country in 1978, China will make it legal for private companies to compete with state-owned banks. Also in the works: a new registration system for IPOs and rules allowing qualified investors to start small to midsize banks.  

And to help boost domestic demand, China will further relax its rule limiting each family to one child.

These reforms will pivot the economy toward market-driven activities and diminish the role of the central government. Businesses that relied on the old ways will have to find new ones in order to thrive.

Global businesses are certainly taking notice. Mercedes-Benz announced in November that it would invest €625 million for a 12 percent stake in the passenger-car unit of Beijing Automotive Group.

Liberalization of population controls, in particular, could benefit sophisticated global brands that appeal to Chinese consumers. However, large machinery manufacturers that profited handsomely from lavish infrastructure spending may fare less well as China shifts toward a consumer economy.

China’s need to change has become ever more obvious as it struggles to cope with slowing export-driven growth and the rising expectations of its massive population.

Entrepreneurs and companies that can navigate the new landscape stand to benefit tremendously. Woe to those that do not.