Junheng Li, Columnist

China Schools Investors on Two-Tier Leadership Structure

The master economic plan ignores demands for growth at any cost among local and provincial authorities.

March 15, 2017 at 5:00 AM UTC

Junheng Li is the founder of JL Warren Capital LLC, an independent equity research firm focused on Chinese companies and the Chinese economy. She is the author of “Tiger Woman on Wall Street -- Winning Business Strategies from Shanghai to New York and Back”

China's National People's Congress wraps up.
Nicolas Asfouri

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Investors trying to make sense of China’s National People’s Congress last week and its relation to the more important 19th Party Congress to be held later this year should familiarize themselves with an old saying: “The mountains are high and the emperor is far away.”

Orders from Beijing are often ignored in the cities and provinces. Instead, important decisions such as whether and how to restructure the debt of insolvent local governments and state-owned enterprises are made locally. Officials on the ground decide whether to actually shut down excess capacity in state-owned enterprises and whether to risk an increase in unemployment because some enterprise or industry (think coal mining, steel, solar panels) has become non-viable, a drain on the public finances, and/or an environmental danger.