China will make 2015 year of missed opportunities

December 22, 2014

By John Foley

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

The penny is starting to drop for foreign investors in China. Two years into the leadership of President Xi Jinping, there’s little sign of the country opening, relaxing and rebalancing as outsiders expected. It’s likely that 2015 will be another year of missed opportunities.

Xi certainly hasn’t been idle. He has punished bad eggs, including former security chief Zhou Yongkang. Industrial overcapacity and energy intensity are subject to new targets. It even seems normal now to talk about China’s GDP growing below 7 percent – something the ruling Communist Party’s leaders haven’t countenanced for two decades.

But the decisive role for markets that Xi promised has not materialised. Hardly any financial products have defaulted. A feted cross-border stock investment scheme with Hong Kong is capped at a measly 2 percent of the Shanghai bourse’s market capitalisation. Meanwhile, the huge pile of foreign exchange reserves that reflects persistent intervention in the currency markets has swelled by $600 billion since Xi took office.

Foreign politicians, investors and bankers are frustrated. Investment into China from overseas in the nine months to September 2014 was lower than in the same period of 2013. But in Xi’s place, most leaders would do the same. Domestic support for the regime is uncertain. The number of labour strikes logged in September by China Labour Bulletin was more than twice the previous twelve-month average. A gathering correction in the property market or an increase in financial instability threatens middle class confidence.

The political popularity quest will only get more fraught. In 2017, five of the seven members of the ruling Politburo Standing Committee will be of retirement age, and jockeying for who takes their place is doubtless under way. The easy way for Xi to win support is by wrapping himself in the flag. That might include widening graft investigations to foreign financial companies, who have previously escaped scrutiny. Bombastic pursuit of territorial claims in the South China Sea is also likely.

All this will raise tensions among trade partners, who hoped for better treatment. One day they may get it. But for now, expect China’s leaders to remain more focused on hanging on to what they have than opening up to the world.


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Our European heritage that has us believe that all people other than Europeans are stupid sometimes makes us have unreasonable expectations. Every greedy investor thinks that everyone else in the world is simply a mark that can be manipulated to give them money for nothing. The penny hasn’t dropped. When US/Europeans realize that people are on to their scams, then the penny has dropped. I don’t know why China just doesn’t do as the white masters want. They must know that the white masters know everything.

Posted by brotherkenny4 | Report as abusive

“Foreign politicians, investors and bankers are frustrated.”

This author is so self-centered and condescending. Xi is responsible for the interest of Chinese people, not foreign politicians, investors, and bankers.

Posted by jhoosac | Report as abusive

I do believe that China leaders can cope with the current economic condition just as they have well done in past three decades although they have been suffering so much ulterior motive critics and alarmist of collapse .The government of china is confident of their ability to maneuvre the balance between the economical reform and political reform .now ,most common Chinese are concerned on the economic development rather than political change .

Posted by 6652911636 | Report as abusive