卡内基国际和平基金会--Reverse-Haggling--in-China_4页_254kb

CHINA IN THE WORLD PODCAST - Episode 12 Summary

Core Content

This episode of the Carnegie-Tsinghua China in the World Podcast, hosted by Paul Haenle and featuring Shi Han, explores the concept of "reverse haggling" in China and its implications for the economy and international business. The discussion centers on how this practice affects domestic and global markets, as well as the potential for reform under the current Chinese leadership.

What is Reverse Haggling?

• Definition: A practice where buyers attempt to negotiate prices upward rather than downward, contrary to the traditional haggling behavior.
• Context: It is primarily observed in less competitive industries such as petroleum, natural gas, and chemicals.
• Mechanism: Purchasing managers may engage in this behavior to secure kickbacks or bribes, which increase with higher purchase prices.
• Impact: Leads to higher costs for goods and services, which then propagate downstream to manufacturers and ultimately to consumers.

Why is Reverse Haggling Harmful?

• Domestic Economy: Causes inflationary pressures and inefficiencies, as prices are artificially inflated due to corruption.
• International Markets: May appear to benefit foreign companies selling to state-owned enterprises, but risks the legitimacy of business in China.
• Global Competitiveness: Raises the cost of Chinese exports, weakening the competitiveness of Chinese manufacturers in international markets.

Government Awareness and Reform Efforts

• Awareness: The practice is known to both domestic authorities and foreign companies, though it has not been widely publicized.
• Reforms from Third Plenum:
  • Emphasized the role of market forces as the decisive actor in the economy.
  • Introduced new regulations to realign the legal organizations, with local judges now reporting to the central government.
• Disappointing Aspects:
  • No significant changes in the management of state companies.
  • No major political reforms aimed at separating Party affairs from administrative functions.

Addressing Reverse Haggling

• Reform Agenda: The Third Plenum and December Economic Work Conference highlighted the need for introducing competition into state-dominated sectors and encouraging private and foreign investment.
• Implementation Concerns:
  • The success of reforms depends on the political will and capacity of the new leadership.
  • Entrenched resistance from state-owned enterprises and local officials may hinder progress.
• Negotiation Potential:
  • There is room for negotiation between local governments and state companies, especially as traditional revenue sources like real estate and land sales decline.
  • Property tax and other revenue streams are being discussed as alternatives.

Growth and Reform Priorities

• Growth Targets: The Chinese leadership aims for a 7.5% GDP growth rate in 2014.
• Economic Rebalancing: Includes tightening credit, reducing local debt, and promoting sustainable growth.
• Potential Conflict: There may be tension between high growth targets and the need for structural reforms.
• Sustainable Growth: Shi Han suggests a healthier growth model that avoids corrupt practices like reverse haggling and focuses on real economic benefits for consumers.

Conclusion

• Key Takeaway: Reverse haggling is a corrupt practice that distorts market prices and undermines economic efficiency.
• Hope for Reform: While the Third Plenum introduced some positive steps, the real challenge lies in implementation and overcoming resistance.
• Future Outlook: There is potential for progress, especially if state companies and local governments are willing to adapt to new economic realities and embrace transparency and competition.