Transparency & Business Operations Reporting in China

As GDP growth slows in country, how compelling an argument may there now be for China's leadership to mandate the implementation of automated, real-time business ops reporting?  With the ongoing dramatic shift to the cloud, BI systems can now easily capture and structure real-time data for managerial and shareholder/creditor analysis.  Primarily, the logic to implement such systems resides in two key concepts : global competitive advantage and efficient resource use.

First, China strives towards competitive leadership in the global marketplace.  Access to far more reliable financial data will unquestionably contribute to that goal.  Capital hesitates to flow where information is opaque.  Consider this: what opportunity cost has China faced over the past two decades due to lack of trust in bus. ops. data?  Which potentially valuable, high-growth Chinese enterprises have not been able to tap into alternative sources of capital due to global investor concerns regarding data reliability?  As has been noted frequently in media reports, smaller private enterprises (SMEs) have had difficulty securing local capital, as much of it has flowed to SOEs through state-owned banks.  A wonderful article was recently posted on Bloomberg on the subject: http://bloom.bg/1ai30PK - Joe Zhang, 7.8.13.  Access to capital at non-exorbitant rates is a critical facilitator of business growth and economic competitiveness.  It helps foster an innovative business mind set, which is one of China's top economic development priorities.  The country will have difficulty moving away from a reliance on manufacturing toward a broader services-based economy without better access to smart global capital.  More timely, reliable business ops. data will open that door.

Second, with financial data out of China at times so overwhelmingly unreliable, consider that inefficient enterprises may be the recipients of capital at the expense of potentially more effective business models.  Which industries might be transformed if capital flowed efficiently to higher-performing participants?  How best to measure high performance, if not through real-time, automated business analytics systems?  Deployed in such a way that multiple measures are made concurrently, which all support a reliable view of the performance of the enterprise.  Ultimately, under such a transformed reporting system, capital resources will flow more efficiently to the enterprise which merits the investment.  All of this is profoundly familiar to those of us who work in and study U.S. capital markets.

Of comfort to Chinese leadership, implementation of automated business analytics for real-time reporting does not require any change in political profile.  Such action would go a long way toward demonstrating to global investors the seriousness of Party leadership's intent to implement economic reforms.  Those who influence the placement of global capital await this move.

Private Equity in China

Interesting to note heightened interest in agricultural investment in China. Focus on organic crops, environmental benefits. Further, as the middle class grows, China sees demand for higher-quality produce increase, along with a willingness to pay for it. See WSJ-VentureWire, 11/5/2010: http://tinyurl.com/2csy8u4

Good Read

When China Rules the World (The End of the Western World and the Birth of a New Global Order) by Martin Jacques. If nothing else, read this section: "Concluding Remarks: The Eight Differences that Define China"; pp. 414 - 435.

Jacques' book serves to hasten our understanding of what it will take to be globally competitive. Set aside some time to read it.

Clinton Visits Asia First, Asserting China Priority (WSJ 2.13.09) http://tinyurl.com/c5u68f
No surprise here. Topics of discussion will include economic, environmental and security issues. Planned announcement of U.S. funding of "Green Projects" in China. Recommended article.

Further reading: China's Currency Problems (Forbes.com 5.03.07) http://tinyurl.com/dnxadh
Of particular note: "According to Paulson, if Beijing works to establish competitive and efficient capital markets, this will then lay the groundwork for a currency that is in fact market determined."

"Eswar Prasad, a professor of trade policy at Cornell University, agrees with Paulson that the U.S. should work to help China establish a sound financial system instead of narrowly focusing on the exchange rate between the yuan and the dollar."

"'What is really important is for China to have balanced economic growth,' he says. Allowing the yuan to float freely could have bad implications if the country's financial system is not in good shape. If people quickly pulled their money out of China, it could send foreign exchange markets haywire. Prasad says the best approach for China is to have a flexible exchange rate while managing its growth."

"One of the first rules in diplomacy--economic or otherwise--is to do no harm. At the moment, it doesn't appear that the dollar-yuan exchange rate is having an enormously harmful effect on the broad U.S. economy. The administration has recently levied several complaints against China at the World Trade Organization for its trade policies, and it has slapped anti-subsidy tariffs on some Chinese goods. For now, this seems to be the best approach to dealing with, rather than meddling with, its currency." - Brian Wingfield, Washington Bureau Chief, Forbes.com

Also: China's Exchange Rate Policy: The Case Against Abandoning the Dollar Peg and related research papers
http://tinyurl.com/apashz