Summary:The panel agrees that China is a nation in the process of dramatic change, economic, demographic, and political. "The country is moving forward," says K.C. Kwok, and while not indicative of the country as a whole, some provinces even are "taking off."
"Expect major changes" in 2002, says Jaime FlorCruz. China′s new generation of leaders are most likely young technocrats and engineers who grew up during a cultural revolution. They have never fought in a war and will be more concerned with the economy than were previous generations of leaders. Kwok agrees that the focus of China′s government in the coming years will be the improvement of corporate governance and business structure. Despite the impressive 7% estimate of annual GDP growth, which he believes is a conservative figure, and the radical changes that will imply, he argues that the underlying changes will be more significant, as the government focuses more on the regulatory framework and fostering business services, such as banking and insurance.
Kwok cautions, however, that China is a big country and that the difference between regions could be substantial. Robert Kapp says that "opportunities are not going to be uniform." James Murdoch adds that the real market in China is comprised of "coastal areas" and "a few inland cities," both of which are comprised largely of "disproportionate earners." There are business opportunities in China, but the panel stresses that one cannot merely view China as a nation of 1.3 billion consumers.
Even though foreign investment has increased and even though China is the second-largest destination of direct foreign investment, Murdoch describes it as still only the "tip of the iceberg." China is also only in the nascent stages of building an equity culture, which will help drive returns as it matures. The Chinese equity market has also produced one of the best returns over the past five years. Hughes cautions that transparency is key; and Murdoch makes the qualification, "One has to have an extremely strong stomach to invest in China," as the media often misrepresents events in China and portrays the country as a mysterious unknown.
Hughes suggests investors keep an open mind when looking for opportunities in or relating to China: "The Internet is not the only place where things happen," she says. "The real action is cable television." Hughes also predicts that while India will become the software capital of the world, China will become the hardware capital. She also notes that Mastercard′s biggest market outside of the United States is China.
The economic changes in China are creating significant pressures on the government. FlorCruz reminds us that it "takes hubris to govern 1.3 billion" people. Kapp says that authority in China is a "work in progress" and that social problems arise as a result of their progressive agenda. With the privatization of some state-owned enterprises, some parts of China face massive layoffs, creating widening income gaps that lead to "very substantial corruption" and pursuit of personal gain at another′s expense. One of the challenges facing China′s political system is holding the various social tensions in check. "China is not a monolith," says Hughes. There is internal conflict and disagreement.
The leadership in China is not the old kind of leadership. There is no one charismatic to unite or lead the people. "Very few Chinese believe in Communism," says Kwok. There are challenges facing the leadership of China. However, Murdoch says the government is "taking their knocks on the international stage to get the job done." And Kapp is optimistic regarding China′s future, saying, "There is a great deal of ferment in China," and "a lot of it is very positive."
The main focus of China′s government presently is stemming corruption. The central government wants to change, but many local officials and citizens worry more about corruption than democracy. It is too early for China′s government to focus on democracy. Such priorities will arise later.
Hughes says that the corruption campaign in China is "absolutely real." From watching the Chinese media internally, she concludes that the Chinese people are genuinely concerned with identifying and eliminating corruption. If the young people cannot trust the government, then the govern will lose whatever control it has. Thus, the fight against corruption serves both a real and pragmatic purpose.
"The Chinese press itself has started to change," says FlorCruz, driven by both the market and by advertising. Hughes adds that more media outlets have arisen in China, weakening government control. As these new outlets pursue profit and viability, they increasing turn towards advertising dollars and in turn seek to cater to such a market. Advertising dollars and the consumer market at large demonstrate an increasing influence upon print and television media.
Despite the positive changes, there is a spiritual crisis in China, a "crisis of faith," according to FlorCruz. The country needs religion, rules, and social norms. There is a breakdown of the healthcare system in China, turning people towards evangelical Christianity, and their belief system as a whole has radically changed. Their beliefs cannot center around money or the economy: there has to be something more.
With 630 million people in China under 24 years of age, the country is obviously at a time of great change. Chinese society "cannot avoid becoming more pluralized," says Kapp. He believes this is one of the most fundamental changes that will occur in China and will help transform China into a viable business partner.
As Murdoch warns, the time is ripe for building relationships and business alliances with China, but the time for reducing problems to entry is dwindling. There is plenty of opportunity for the US to be a part of China′s transition, both through public policy and the number of students coming to the United States to learn. Murdoch warns that China will inevitably find its own way, with or without the US. The Taiwan issue, for example, is important to China and is a matter of "when, not if," he cautions. The best course of action for the United States is helping China to become a productive nation integrated with the rest of the world.
Kwok: "Government took a major step forward in the last few years." Gov. still needs state-owned enterprises in small cities, where one or two government enterprises might account for most of the employment in those cities.
Murdoch describes the new leadership as "absolutely capitalists" and "absolutely statists."
Kapp: as a market mentality replaces a planned-economy mentality, "the institutions struggle to keep up." Training of financial regulators is lagging. Each co. is doing its best to get "through the maze."
Hughes: new generation in China every 10 years. Important in terms of succession politics.
