I’ve mentioned before the value of Guanxi when in China, but I have yet to do justice to it.  There is a great series on the This Is China! weblog about Guanxi, discussing the value and necessity of this hard to define subject.

In China, Guanxi is still a very important consideration when doing business with Chinese company and government representatives. The closer to centers of power you are in China - Beijing Central government, State Owned Enterprises (SOEs), Provincial Capitols - the more inexorable the pull of guanxi and its attendant complexities. But there are guanxi-free bastions developing in China: many private enterprises along the east coast - especially in entrepreneurial Zhejiang province - Chinese companies that are trying to make a name for themselves in the international markets; and even some nationally approved economic development zones.

Part 1: The Half-Life of Guanxi
Part 2: Guanxi Near-Death Experiences
Part 3: Guanxi: An Environmental Hazard
Part 4: Guanxi and M&A (Messy and Ambiguous)
Part 5: Lessons Learned
Part 6: Guanxi and China Site Selection
Part 7: Guanxi and Chinese Suppliers

A lot of what is published by today’s media has a spin on it, making things seem a little worse or even a little better depending on who writes the article.  In particular, the past few months have seen a spike in news articles talking about China’s overheating economy.  People seem to forget that what is usually reported in China may not be accurate.  Take for example the reporting of country statistics by the Central Government.  The Central Government rushes to get this information out as soon as possible, often not letting the various provincial Governments or other agencies report their own statistics.  This generally leads to an inconsistent reporting on any statistic coming out of China. 

I encountered this several times in 2006.  Whenever I had to present data or trends to a client I usually had to refer to several official stats put out by several government agencies to try and estimate the most accurate number - a very time consuming and sometimes misleading task, as differences can be in the range of 10 - 200%.

Recently, an article in the July 28th Economist brought this type of inconsistency to light.  China reported that its GDP for the second quarter of 2007 increased by 11.9% - an increase that has not been seen since 1995.  This led to speculation that the recent increase of inflation by 1% was proof that China’s economy was overheating.

If you look at other indicators of growth such as production or real expenditure, you will notice that there has been no significant growth since 2003.  Additionally, there is a lack of traditional overheating symptoms.  There has been a decrease in bank lending and imports, and while wages have been increasing, so has productivity, resulting in a decrease of unit labour costs.

This is explained by the fact that:

reported faster growth may partly reflect a move to correct previous inaccuracies. In the past, official GDP figures have been much lower than his own estimates, but now the gap has disappeared. In other words, the acceleration in growth may be largely illusory.

This seems to make sense because the Central Government has not made any moves to try and slow down the economy; the government is rewarding savers, while at the same time not increasing interest rates significantly.  In short, the government is not doing anything to reduce inflation - something that would be necessary if the economy was really out of control.