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End of China term limits sends shiver through business sectors

On Behalf of | Feb 27, 2018 | Uncategorized

One notable phrase in the popular “Game of Thrones” franchise is, “winter is coming.” The Stark family motto is as much a warning to be vigilant as it is a pragmatic forecast of seasonal change.

In the wake of a weekend announcement that China’s Communist Party is considering eliminating presidential term limits called for by the country’s constitution, some suggest a chill now runs through the veins of the economy. Business leaders are uncertain of what to expect from the Beijing government.

To be clear, the announcement Sunday is merely one of intent. It still needs to be approved by a parliamentary vote in March, but U.S. news operations observe that the party congress is largely a rubber-stamp institution, suggesting passage is assured.

What the move could mean

One of the major concerns being expressed by analysts is that the announcement reflects a move toward indefinite one-man rule under current president Xi Jinping. As such, there’s anxiety that essential legal and policy reforms necessary to maintain China’s economic growth will suffer. At the very least, they suggest the shift away from current impartial institutional controls to a “key man” model could erode business confidence about needed reforms and reduce investments.

On the plus side of the equation, some analysts suggest the end of term limits could be good in the short run. They say mid-level government officials, seeing that Xi might remain in power after his current second term ends in 2022, could be more inclined to push through reforms Xi champions. However, that might not last long term.

For foreign businesses, groups see the move as possibly supporting party initiatives to increase the government’s voice in joint ventures – increasing control over a broad scope of strategic decisions. The worry expressed is that private enterprises could be remade into tools for achieving party development plans.

At this point, it might be good to note that historically, volatility is common in China’s economy. That, combined with differences in law and culture, has always supported the wisdom of due diligence and working with experienced counsel when seeking to do business in that part of the world. This latest move certainly should do nothing to alter that point of view.