[Marxism] Just received my Goldman-Sachs Alumni newsletter that is bullish on China

Louis Proyect lnp3 at panix.com
Mon Oct 30 15:33:14 MDT 2017


Briefly... on What China's 19th CPC National Congress Means for M&A

In the wake of China's 19th Chinese Communist Party (CPC) National 
Congress, investors, companies and entrepreneurs may have reason to feel 
more optimistic about the prospects of doing business in the country. We 
sat down with Goldman Sachs' Hansong Zhu, president and co-head of China 
Investment Banking, who shared takeaways from the congress, which is 
held once every five years to set the party's national policy goals and 
elect its top leadership.

Now that the 19th CPC National Congress has concluded, what's your sense 
of the potential impact on financial markets and investors?

Hansong Zhu: Overall, the news appears to be generally positive. After 
listening to President Xi's speech at the start of the Party Congress 
and, after speaking with government officials, the expectation is that 
China will reinforce the comprehensive reforms -- which include supply 
side and mixed-ownership reforms, investing in technology and 
innovation, and opening up markets to foreign investors -- that the 
country had been moving toward over the past five years. The Party 
Congress not only formalized the economic reforms by writing them into 
the constitution, but also touted the initiatives as pillars of the 
party's "new thinking in a new era." The Party Congress also elected 
some younger, emerging leaders who are likely to be energetic and eager 
to implement these measures. For all these reasons and others, we expect 
the pace of economic reforms to continue and even deepen.

Reforms of state-owned enterprises (SOEs) appear to be high on the 
agenda of government reforms. What does this mean and what's the 
potential impact on the M&A landscape?

HZ: Mixed-ownership reforms mean that the government is likely to reduce 
its ownership interest in companies. As a result, private or even 
foreign investors will be able to take larger stakes in the SOEs, 
thereby aligning the interests of SOEs with market-oriented enterprises. 
While this isn't likely to have a big impact on cross-border M&A, we 
could see a pickup in domestic M&A activities as companies look to 
strategic sales and consolidation to create efficiencies and economic 
value. As an example, before the Party Congress there was an interesting 
case of mixed-ownership reform involving the telecom company China 
Unicom. As part of Beijing's push to revitalize SOEs with private 
capital, the government reduced its stake in Unicom to below 50 percent 
and invited investors including Alibaba Group, Tencent, Baidu and others 
to be private shareholders in the company to increase management 
autonomy, bring in capital and encourage innovation.

How is the government thinking about growth going forward?

HZ: In a break from past practice, for the first time, China's 
government did not specify an economic growth target at the Party 
Congress, but rather proposed a qualitative description of the type of 
growth it was seeking, saying it wanted to achieve "high-quality 
economic growth," and using words such as "open, sharing, innovative, 
balanced and green" to describe the criteria for that growth. Describing 
high-quality growth as "green," for example, implies promoting economic 
development that is environmentally friendly, while the use of "open and 
sharing" may signal a greater willingness by the government to further 
open markets to foreign investments and vice versa. If you look at the 
past five years of cross-border M&A, for example, Chinese companies have 
been making more international investments and acquisitions, while 
looking for access to natural resources and agricultural products to 
help meet the demands of the growing middle class. So we expect the 
trend of using cross-border M&A to achieve this transformation to 
continue. The Party Congress identified the services industry as one of 
the sectors that could benefit from greater foreign investment. This is 
notable because the services industry in China includes financial 
services firms, so implementing changes that would protect foreign 
investors' legal rights and legitimate interests could allow firms such 
as Goldman Sachs and others to offer more products and services in China.

What are the next milestones and signposts to watch for?

HZ: The next big meeting will be China's "Two Sessions," when the 
National People's Congress and the Chinese People's Political 
Consultative Conference gather in March 2018. That's when the Premier Li 
Keqiang will be making a speech with more details and specific measures 
on how the Party Congress intends to carry out the reforms. At the 
meetings, we will likely see a reshuffle of officials in China's 
government and its central bank, the People's Bank of China.


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