reports about the Chinese government ordering state-owned
enterprises (SOEs) to cut ties with US consulting firms have
suggested a tit-for-tat dispute between China and the US over
cybercrime and national security. But is it really a case of
More likely, it is simply China intervening to support the
growth of its local Chinese consulting sector as it looks to
advance towards a sophisticated, services-based economy.
China has previously used bans on foreign services and products
to grow its domestic industries with great effect. Now, it's
quite possible its using this tried and true policy lever to boost
development of the home grown consulting sector and professional
services more broadly.
For decades, China has been promoting the development of
services and technology as part of building a robust modern
economy. Premier Li Keqiang has repeatedly reinforced this policy
priority in his public speeches and the State Council has made
several decrees aimed at helping sectors like
From an economic development perspective, China has a clear
interest in restructuring its economy to being more services-based.
Services provide a natural hedge to the highs and lows of the
commodity cycle and also the shifting whims of the international
The opportunities for Australia are enormous as nearly one
billion new middle class Chinese demand their share of our
non-resources sectors: agriculture, high-end manufacturing and
services. But we need to be cognisant of the Chinese
Government's desire to find local solutions to these
Right now output from China's service sector accounts for
less than 50 per cent of national GDP, significantly lower than the
70 per cent usually seen in developed countries. However, in a
recent address at the 2nd China Beijing International Fair for
Trade In Services, Premier Li Keqiang declared that services
already add more value to the economy than industry and that the
sector employs more people than agriculture.
Any ban on state companies engaging foreign consulting firms is
unlikely to be simply the result of national security concerns.
Rather, these concerns provide a convenient reason for Chinese
consulting firms to expand their business and gain experience and
expertise in significant cross-border transactions, all essential
to becoming competitive in the global market. As China's local
consulting industry grows, so too will the broader professional
In the past we have seen how IT services have reportedly
benefited from a ban on the use of Microsoft's Windows 8
operating system on government computers. While security concerns
may be part of the reason for the ban, it is reported that China
has been developing its own operating system. Like the ban of
foreign consulting services, the ban on Windows 8 will facilitate
the growth of a computer operating system indigenous to China and
the development of China's IT services sector more broadly.
The position on foreign services firms is reminiscent of
China's ban on global tech giants like Facebook, Twitter and
Youtube in 2009-10, which has resulted in
explosive growth of China's own gaming and social media
Tencent and WeChat. Tencent is now the world's biggest
company in terms of game-related revenue, raking in some US$5.3 billion
last year. This comes after it grew by 45% last year, streaking
past Microsoft's US$4.7 billion in gaming revenue.
Given the commercial benefits of China's new ban on foreign
consultants, it is hard to believe it is all about national
security. Rather, the likely scenario is the Government is using
the ban to promote China's indigenous services sector. We
should expect China's leadership to continue employing a range
of policies as part of the transition to a modern economy –
the face of capitalism with Chinese characteristic is complex and
ever-changing. In the meantime, we will no doubt see an increasing
number of Chinese domestic consultants servicing the needs of the
growing Chinese market.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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