Good friend, and frequent commenter, Jay Boyle once said that “Guanxi either retires or goes to jail“, and over the past few years in particular we have begun seeing this as Beijing clamps down on a number of officials for graft.

Most recently the removals of Shenzhen Mayor Xu Zongheng and Pi Qiansheng Binhai New Area Investment Zone Director caught my attention as these men were in the drivers seat of major economies, economies that were view as drivers of China’s march to 8% GDP growth.

A few notes of where I find these arrests as important:
1) Many firms when entering China travel from zone to zone looking to find the best deals. Deals that are sometime in contravention with Beijing’s guidelines for incentives. 2 years ago while visiting Suzhou on one such trip were were flatly told that the days of old were gone, and that a new path was being taken. For some, like my client, they chose Suzhou regardless, but for others the search continues further inland. To areas that were reportedly giving better deals.

Deals that could come under inspection

2) The old boys network in Tianjin and Shenzhen are being dismantled, and Beijing wants more control. Tianjin, a city that was only until a few years ago largely managed by those born in Tianjin, Beijing has taken advantages of a few opportunities to dilute this power base and exert its control. for the average firm, in the short term, this may not seem important, however for firms looking to invest at the highest levels or for those firms hoping to skirt the rules, things could change quickly.

Some food for thought on a couple of recent new pieces, and for those with a larger apetite, I highly recommend the article  China’s Governance Crisis and China’s New Leadership

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