by Alistair Nicholas
September 12th, 2012

This year would normally be considered a “lame duck” year in Chinese policy reform as the current government of President Hu Jintao and Premier Wen Jiabao has entered its 10th and final year in office. But, in actual fact, 2012 is looking to be quite the opposite and foreign companies with interests in the market will need to keep a finger on the pulse as policy reforms are debated and various agendas are pushed forward. They will also need to consider strategies to influence positive outcomes for business in the reform process.

Going into this year’s Lianghui or “two meetings” — the annual convening of the National People’s Congress and the Chinese People’s Political Consultative Council — the World Bank and the Development Research Center (a think tank under China’s powerful State Council), published a report, China 2030, which outlined far-reaching political and economic reforms necessary to drive China forward to High Income Nation status in 18 years.

While the report wasn’t addressed directly during the Lianghui, many government ministers are now in overdrive selling the need for reforms that could fundamentally change the nation’s political and economic landscape.

In particular, the China 2030 report called for China’s large State-owned enterprises (SOEs), which control much of the economy, to compete on a more equal playing field with the private sector. Premier Wen in particular has called for reform of the large State-owned banks which exert undue influence and stifle the country’s nascent private sector. While the exact word “privatisation” has been carefully sidestepped, it seems the sale of state assets would form part of a relatively radical reform agenda.

The debate is made doubly interesting as so-called conservatives within the government have come out against the reforms on the basis that they are “unconstitutional.” They argue that public ownership of the means of production is enshrined in the constitution. Others yet are calling for a softly-softly approach to reform.

Add to that, China’s opaque politics make it difficult (if not impossible) to see where President-in-waiting Xi Jinping stands on the reform agenda, and China’s future seems unpredictable and uncertain.

Yet, much is at stake. While the world has a vested interest in China’s economic development, China’s economy is forecast to grow only 7.5% in 2012 — just 0.5% above the minimum needed to absorb new entrants into the job market. And the delicate balance of the global economy means that shocks in the US or Europe could seriously damage China, leading to a vicious spiral of interlinked recessions.

Foreign businesses and governments need to peer through the glass into China’s system to glean the status of the policy reform agenda and see what direction it might take. But this is not easy.

In the confusion of China’s myriad bureaucracies, arcane policies and unfathomable regulations, navigation requires more than just a good map and GPS.

Now more than ever, foreign companies need expert support in China both to minimise immediate risks and achieve positive outcomes. International companies have much experience to draw upon to help China achieve its objectives; but they must contribute in ways that are culturally sensitive and do not threaten the Chinese Government and people.

One way foreign companies operating in China can under-stand and influence the policy agenda is by engaging external consultants. Public affairs and government relations experts help determine the lay of the land without necessarily exposing clients too much by conducting “blind” surveys and policy audits; by mapping and profiling government officials to understand where key influencers stand with respect to specific issues; and by designing strategies to effect positive outcomes.

But this must be done cautiously, even by public affairs consultants. Just talking with officials about policy or regulatory changes under consideration can be construed as compromising State secrets; and trying to influence these outcomes could easily be misunderstood as interference in China’s internal affairs.

Consequently, companies should use a variety of approaches to influence outcomes. It is better to contribute to the conversation indirectly through industry associations, academic institutes, think tanks and even NGOs and GONGOs (Government-Owned Non-Government Organisations). Such organisations can debate, publish reports and host seminars in ways that are less threatening to officials than foreign executives plying solutions in the lobbies of state offices.

Foreign organisations can also leverage traditional media when promoting policy agendas, so long as the organisation tries to keep its name out of the news if possible. And, increasingly, it is possible to leverage social media. There is a vibrant discussion of social and economic development issues online, some of which is openly encouraged by the government and some of which is tolerated.

Never before has the ability to read China’s tea leaves been so important. Yet, never before have they been so hard to read, and influence, as in the current environment where conservatives and reformists are lined up against each other.

As China moves through this transition of government and uncertain reform, it is critical that the organisations most impacted by these changes must influence the policy debate towards global engagement and open, fair markets.

Obtaining relevant qualitative information and good analysis, and understanding proper next steps, will prove critical to success in the coming year and, likely, the decade ahead.

Alistair Nicholas is executive vice-president, Asia Pacific, at Weber Shandwick

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