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