Summary:China is a complex paradox that is both misunderstood and the most important rising global power. This position was put forth as the introduction for the session by moderator John Holden. Some important initial facts presented to support this include a growth rate of more than 7 percent in GDP over the last 10 years to $1.4 trillion in 2003, surpassing the level of $1000 GDP per capita last year, and a balanced trade account. The overall theme was the need for multinationals to not only have a Chinese strategy, but to rethink their strategies as ongoing change in China occurs. Participants noted that the call for Chinese strategies was no longer being driven by middle management, but rather by boards and CEOs.
China is a “disruptive economy” stated Howard Chou. Not necessarily a negative implication, he implied that China is having profound effects on trade and capital flows, which is affecting the global economy. He noted several trends that are impacting corporate strategy including China replacing the U.S. as the largest recipient of FDI, China becoming a driver for the global economy as both producer and consumer, and a rise in the service sector, particularly financial services, insurance, and investment banking.
Also of note was the trend to use the engineering expertise within China to set up R&D operations as well as manufacturing while maintaining management and administrative functions in the U.S. Chinese companies, fueled by an active IPO market—20 plus on the NASDAQ this year alone—will continue to play a bigger role in the global market. Chou recommended a corporate strategy that includes acquisition of Chinese assets and revenue as soon as possible through M&A’s.
Yibo Shao stated that he “views China a must have, from a strategy viewpoint.” Two topics Shao and other panelists focused on were the “hope and hunger” issue and freedom and human rights. The Chinese people have hope from the ongoing transformation, which has lead to unbridled optimism and a willingness to spend. This optimism is being carefully measured by the Chinese government, as any policy change that challenges the populous’ rising expectations could adversely affect civil peace.
The Chinese were noted for wanting more transformation and in the process wanting to get a piece of the prosperity including private property. The concept of private property is new to the culture as private property rights were just added to the Chinese constitution. Also of note was the fact that 80 percent of all Chinese stock market volume was held by individuals willing to take risk, though they may not understand it completely. Learning to exercise their new-found freedom socially and career wise is something the Chinese people are grappling with.
Shao noted three points of importance to developing strategies—progress is real and irreversible, China is not all that different than dealing with other developed countries, and there will be setbacks, both economic and social. Aspects of these social setbacks, include the concept that freedom has a price, corporate corruption, and that money is not that important.
A “willingness and desire to become part of the global economy” by businesses and the government was raised by Fredy Bush. Ongoing initiatives to increase transparency and corporate governance have been reflected by Chinese companies’ management’s willingness to work with Xinhua Financial Network’s rating service. The panelists observed an overall trend to adopting international standards. The government used to be the greatest risk to business, but was now not considered a major risk factor to conducting business in China.
James McCaughan emphasized finding balance in the Chinese economy. As China’s economy matures, bringing fixed investment, savings rate, export, and private wealth numbers as a percentage of GDP in line with other stable mature economies is considered necessary. The quick transition to a market economy without a capital safety net has led to a high, unsustainable savings rate. McCaughan stated “the key to sustainable growth is a balanced economy.” Another issue of concern was the need to create jobs—24 million a year. Without sustained job growth, civil unrest is highly likely.
The panelists mentioned various times that Western media had wrongly portrayed China in various aspects. The amount of nonperforming loans, although a large percentage of bank assets, is not a cause for panic as the Chinese government was continuing to support them. With patience, the rule of law would continue to develop as would the potential for gains from investment in China. Shao remarked that China continued to change from “rule by law” to “rule of law.”
Other areas of concern to the panelists include U.S.-China trade relations, Taiwan-China relations, and urban versus rural population issues. Revaluation of the Yuan (RMB) was considered of low importance with little benefit today. Overall the panelists showed guarded optimism about China.
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