China Management As China's Economy Essay

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State Domination and Financial Markets

The Chinese government has characterized its involvement in economic development as "serving rather than supervising the private economy" since 2008 (Xinhua, 2009). With this shift in focus a number of changes to Chinese management can be expected. The paternalistic approach will remain, as it is part of Chinese culture, but there will be further Western influences, particularly with respect to the desire outcomes of management behavior.

In their efforts to serve business, the Chinese government will inevitably work harder to attract foreign investment and to allow business to set the terms by which they can seek investors. This will shift the desired outcomes of management behavior towards those sought by a wider range of investors, both domestic and foreign. Asia Aluminum provides an example of this, as foreign investor outcry over the bond scandal forced the company to consider other options. Management at that point realized the influence that the foreign investor community had over its operations -- the outcry had caused the municipal government that backed the bond buyback offer to withdraw its support (Santini, 2009). Management is now faced with more difficult decisions including a total restructuring of the company, which had been operating unprofitably. This shows how Chinese management and corporate governance has been changed by the increase in foreign listing as Western governance standards were implemented against the wishes of the Chinese company's management. As more Chinese companies are free to seek international investing, they too will find themselves faced with adherence to both Western and Chinese standards of governance and management.

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As state domination in many sectors of the Chinese economy lessens, Beijing still maintains strong influence over the yuan, which is on a managed float system. There is little impetus at present for a move towards a free float, but with government involvement in private economic enterprise lessening, that trend will eventually be applied to the currency as well. The implications for Chinese companies of such a move would be dramatic. They would then be forced to compete even more intensely on the basis of efficiency and quality, having lost the competitive advantage their exchange rate currently gives them.

Conclusion

As China continues with its economic reforms, there is a continuous impact on management and on corporate governance. In some ways private enterprise -- particularly those firms that are partially privatized, such as the 2/3 firms -- operates with shareholders as surrogates for the role that the government once played. Yet the fully private companies are developing an entirely new style of management. Upcoming reforms promise to bring the fully private companies into the same realm and subject to the same laws as the partially-private firms. This will change the dynamic of managers who have until now been motivated almost entirely by the need to generate retained earnings. Thus, management in China is being pulled in different directions by the needs of government, private enterprise and foreign investors. Ultimately, management and governance in China will settle on a system that is very much a socialist market system with Chinese characteristics.

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