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Crisis management

23 September 2013 By John Foley

China’s leaders are basically managers. For them, the life sentence handed to purged politician Bo Xilai is a job well done. Stakeholders can relax; stability has been secured, and a wayward executive has been removed before he could destroy value.

It sounds simplistic to compare governing a country of almost 1.4 billion with running a corporation. But the tasks aren’t so different. The Politburo Standing Committee’s job is to keep things running smoothly and present a united front, while making sure myriad sub-units do their job and dividends – in China’s case wages – keep growing. The flamboyant Bo, who once seemed a shoo-in for the seven-member top team, threatened the order by putting personality before process.

As with a company, a closed culture and centralized power can solve problems. Bo’s trial for bribery and abuse of power was live-blogged by the courts, but carefully edited. Even the charges leveled at him seem to have been selected to focus on personal actions rather than public functions – perhaps to avoid the domino effect of multiple arrests that sprung from earlier famous scandals in Shenyang and Xiamen.

Though Bo has been neatly dealt with, future challenges may strain the model. Consider the financial system. Keeping strict tabs on capital flows and holding power at the centre has been helpful. The country’s estimated debts of almost 200 percent of GDP are almost all held domestically. Money-printing remains an option.

Yet while the system remains quite simple, the proliferation of deposit-like credit products sold by banks is rapidly adding complexity. The growth of the internet also makes it tougher for China’s leaders to manage their message, as shown by the recent heavy-handed campaign to detain online rumour-mongers – including a sixteen-year-old boy. On environmental degradation, there are no easy answers.

The biggest risk might be that complacency sets in. Bo’s fate will have cowed his supporters, probably leaving the party even stronger. On the financial front, past successes have emboldened leaders to argue that China’s debts are under control – even as Fitch Ratings warns borrowing could pass 270 percent of GDP in just four years. These are worrying signs. For politicians and managers alike, learning from a crisis is as important as surviving it.

 

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