The Economist, July 22nd – 28th, 2017

Sun’s out

On July 15th, Sun Zhengcai (孙政才) (孫政才) – the Politburo’s youngest member, who was seen by some as a potential successor to Xi Jinping – was sacked from his position as Chongqing’s Party Secretary.

After a brief interregnum, Sun succeeded Bo Xilai (薄熙来) (薄熙來) as Chongqing Party Secretary, and according to the Economist:

A cloud appeared over Mr Sun in February, when party investigators accused him of failing to clear Mr Bo’s “toxic residue”.  Now Mr Sun is said to be under investigation for violating party rules…

the new chief of Chongqing, Chen Min’er [(陈敏尔) (陳敏爾)], is Mr Xi’s man.

China in Africa

China will soon open a military base in Djibouti, its first military base abroad since the Korean War.

According to the Economist:

In 2014 the number of African students in China surpassed the number studying in either Britain or America…

Afrobarometer, a polling firm, found that 63% of people in 36 African countries consider China to be a positive influence.

McKinsey… looked at five measures of Africa’s economic connection with the world: trade, investment stock, investment growth, infrastructure financing, and aid.  It found that China is among the top four partners in each of these.  “No other country matches this depth and breadth of engagement,” it enthused.

McKinsey’s work suggests that there are as many as 10,000 Chinese companies operating in Africa, 90% of them privately owned.  Many also reported earning juicy returns…

However:

It is far less certain that Chinese investments in big infrastructure… will ever show a return… there is even less chance of recovering the cash sunk by Chinese state-owned firms into poorly governed places such as Angola and the Democratic Republic of Congo…

In a decade or so China may find itself in the position the West once did, of having to write off many of their loans to African governments.

China Inc

Chinese state-owned enterprises (SOEs) are on the march, drawing on government support and making conquests at home and abroad.

While SOEs account for less than a fifth of Chinese output today, there are still more than 150,000 of them, and those enterprises take in about half of all bank loans. Since 2008, the ratio of company liabilities to equity for state-controlled companies in China has exceeded that of non-state controlled companies. In addition, investment by SOEs has grown faster than private-sector investment since 2015.

According to the Economist:

The “One Belt, One Road” strategy – the core of Mr Xi’s foreign policy – has made foreign expansion an explicit part of their mandate.

and Chinese policymakers are using mergers to create “national champions.”

Indeed, part of the rationale for the mergers is to prevent SOEs from butting up against each other as they go abroad to win business.

In addition, quick progress in establishing “state capital investment and operation” companies (SCIOs) to invest in new high-tech sectors seems to set to extend the state’s reach into the private sector, just as

State-backed private-equity funds, which can be seen as forerunners to the investment function of the SCIOs, are already making a big impact.

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