Summary:Moderator Timothy Dattels kicked off the discussion commenting, "If you don′t know what is happening in China today, you don′t know anything." That sparked a discussion showcasing China′s emergence in the global economy.
Several facts and myths were summarily raised and dismissed by the panelists: On a Purchasing Power Parity (PPP) basis, China is the world′s second largest economy. China is the number one destination for foreign direct investment in the entire world. In addition, fears of China′s exporting trends, and all that they imply, have been vastly overstated. Contrary to paranoid belief, China is not going to be taking over the world anytime soon, if ever.
Dattels pointed out that China is a low-cost producer and net IT importer, focused on the manufacturing intensive, labor intensive side, in the interim at least, noting that Ricardian logic is working here. With that statement, Dattels turned the floor over to the panelists, starting with Milken Institute economist Perry Wong.
Wong was quick to respectfully disagree with the statement that China is a low-cost producer. He did, however, grant the fact that the roots of Chinese manufacturing are embedded in low-cost manufacturing that has, as of late, spun into a mix of low-cost and value-added manufacturing ventures. Wong also pointed out the experience of Shenzhen — a region characterized by a booming population and exports in excess of $50 billion per year — a large part of which is the export of electronics. In light of the quality of goods produced in China — third, immediately after Thailand and Malaysia, and Hong Kong and Korea on the upper end, Wong is concerned with the speed with which China will catch up to the former and eventually compete with the latter where product value is directly tied to value-added products and services. In response to the question of whether China can become the world′s factory, Wong replied, "Maybe. Maybe not. But current trends certainly indicate so."
Tom Wright, Senior Vice President of Cathay Pacific Airways noted China′s sheer size and influence, particularly in the Pearl River Delta, on the local and global transportation of both passengers and cargo. Hong Kong is the world′s third largest airport with access to half the world′s population within five hours time. With respect to cargo transportation, the Hong Kong airport is the largest port in the world.
M.K. Wong, Vice President of China Trade of Orient Overseas Container Lines (OOCL), believes that China′s most daunting challenge lies in the area of connectivity — both regional and global, and both tangible and intangible. Success of the Pearl River Delta is not merely a function of foreign direct investment, he said, but also one of multi-governmental and multi-port cooperation to link transportation hubs. A link between Taiwan and Hong Kong is of utter importance to Chinese economic growth. That said, Wong believes the future of China lies in Shanghai. Currently unreachable by large sea vessels, Shanghai holds the key to trade between Asian countries as well as between Chinese regions, he maintained. In closing, Wong suggested that coupling disconnected pockets of cities and one railroad in all of China, and the Chinese resolve to rapidly build an advanced infrastructure, China′s Western regions are poised to become an Asian version of the American Midwest in 35 years time.
With China′s ascension to the World Trade Organization (WTO) and its rapid rise into the upper echelons of world trading partners, Zhengyu Tang, Partner at Sidley Austin Brown & Wood, revealed that he regularly receives six to seven new pieces of legislation pertaining to Chinese economic business practices. Such trends have led the Chinese economy to become more and more transparent, though much ground remains to be covered, especially in the field of intellectual property and copyright laws (an area in which the WTO has applied pressure). That being said, Tang stated that the Chinese are notorious for issuing laws and regulations, however, laws passed at the central level are oft-times in direct contradiction to those passed at the local level — a current example of which are the latest M&A laws. In closing, according to Tang, the impartiality and ethical behaviour of the Chinese judicial system is the biggest challenge. As of late, most Shanghai judges have actual law degrees, a practice that generally had not been followed in the past.
Other issues raised by the panelists with the help of the audience were China′s management of the current SARS health crisis, the issue of a floating RMB (China's currency), the military′s role in the future of China, and Microsoft/China relations.
In closing, according to the panelists, the greatest risks Chinese leadership needs to pay attention to are the integration of Western China into the Chinese engine, China′s transition into the global marketplace, the role of Hong Kong and its world-class banking system, low levels of cost of production which neither the Chinese nor the world expect to remain constant, and the Chinese judicial system.
