Silk Road 2003Silk Road 2003
Understanding China Understanding China in a Globalising in a Globalising WorldWorld
Joseph T. Hsu, CEOThe Symbio Group
www.symbio-group.com
The 8th Annual LRC Conference
““SILK ROAD 2003, UNDERSTANDING CHINA IN SILK ROAD 2003, UNDERSTANDING CHINA IN
A GLOBALISING WORLD”A GLOBALISING WORLD”
1.1. CHINA DE-MYSTIFIEDCHINA DE-MYSTIFIED
2.2. OPPORTUNITIESOPPORTUNITIES
3.3. FORTUNE FAVORS THFORTUNE FAVORS THE BOLDE BOLD
CHINA DE-MYSTIFIEDCHINA DE-MYSTIFIED
“There is this idea that China is incomprehensible.
This is something the Chinese encourage. Chinese people like to think of themselves as being completely different to everywhere else.” -Adam Williams, Chief Representative, Jardine Matheson ; novelist, Sunday Morning Post. H.K.
10/26/2003
1.1. CHINA DE-MYSTIFIEDCHINA DE-MYSTIFIED
• Social MythsSocial Myths
• Political MythsPolitical Myths
• Economic Economic MythsMyths
Social Myth #1Social Myth #1
““A phoenix rising”: China is a new eA phoenix rising”: China is a new emerging superpowermerging superpower
Social Myth #1: Social Myth #1: “A phoenix rising”: Ch“A phoenix rising”: China is a new emerging “superpower”ina is a new emerging “superpower”
The Real Story:The Real Story:
Historically a “superpower” nation
Long civilization
• Robust recorded history
• Most families can trace roots back 800 years
The Great Divergence: Western Europe and China “China is a much richer country than any part of Europe,”
-Adam Smith , “The Wealth of Nations” , 1776
China has historically been a “superpower” China has historically been a “superpower” nation in the worldnation in the world
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
100 1000 1500 1600 1700 1820 1978 2000
China Europe/US Others
- Deutsche Bank Based on US $ of 1990
China’s GDP as % of the world, dominant in 90% of the last 2000 years The entire world economic or
der was – literally – Sinocentr
ic until the 18th century. Chri
stopher Columbus and after
him many Europeans up until
Adam Smith knew that.
China’s balance of trade and
payments surplus continued i
nto the early 19th century.
-Andre Gunder Frank, Global Economy in the Asian Age,University of California Press, 1998
Year, AD
China has a long civilizationChina has a long civilization
Did you know… The Xia Dynasty began in the 2200 BC and has an extensive and
well-documented history The Qing Emperor united 7 existing countries, written languages,
currency, roads in 221 BC China printed books several hundred years before the Gutenber
g Bible Chinese landscape paintings emerged as a form of art several hu
ndred years ahead of Europe
“China is essentially a country of history and culture”
“Chinese civilization… has remained recognizably the same in essentials and
is thus the oldest continuous, major culture in the world today.” - W. Scott Morton “China, Its History and Culture”,1995
China has a robust recorded historyChina has a robust recorded history
“Details of life in the second millennium B.C., conversations of the sixth centur
y B.C., and letters of the first century A.D. and the like have been preserved, an
d thousands and thousands of local gazetteers about local conditions have bee
n published by prefectures and counties for centuries.”- Wing-tsit Chan, Professor of Chinese Philosophy and Culture Emeritus, Dartmouth College,1995
Written language “Oracle” used 20th~15th century B.C.
But in the 16But in the 16thth century, China and the West too century, China and the West took two very different coursesk two very different courses
Industrial Revolution
Religious reform
Renaissance
Emergence of the US
Starting in 1434, Ming empire halted the great maritime expansion
Ching Emperor made “craftsman” and “merchant” the lowest professions for Chinese citizens
Ching Emperor told King George III that China had “no use for your country’s manufactures”
While the West experienced…
…China went the other way and shut its door to the outside world
“The ancient Chinese ship sailed off the course of the world’s mainstream of wealth” - Hu Yung, Chinese Academy of Social Sciences, 2003
Social Myth #2Social Myth #2
““Everyone looks alike”: China has Everyone looks alike”: China has a homogeneous culturea homogeneous culture
Social Myth #2: “Social Myth #2: “Everyone looks alikeEveryone looks alike”: China’s culture is homogeneous”: China’s culture is homogeneous The Real Story:The Real Story:
Multiple ethnicities, religions and philosophies
• The Chinese Union
• Country that shares the most borders
• Middle Kingdom as a melting pot As early as three thousand years ago, Hebraic and Iranian religions ideas ar
e practices traveled eastwards on the Silk Road, to be followed centuries lat
er by the great missionary tradition of Buddhism, Christianity, Manichaeism,
and Islam. And no religion emerged unchanged at the end of the journey.
-Richard C. Foltz, “Religions of the Silk Road”, 1999
China officially has 56 nationalitiesChina officially has 56 nationalities
China shares its borders with the most China shares its borders with the most countriescountries
1.1. CHINA DE-MYSTIFIEDCHINA DE-MYSTIFIED
• Social Myths Social Myths
• Political MythsPolitical Myths
• Economic Economic MythsMyths
Political Myth #1Political Myth #1
““The East is Red”: China is a rigid The East is Red”: China is a rigid communist statecommunist state
Political Myth #1: Political Myth #1: “The East is Red”: “The East is Red”: China is a rigid communist stateChina is a rigid communist state
The Real Story:The Real Story:
“Socialist Market Economy with Chinese characteristics”: China has a special system
• Communism is a localized Western import
• China has deep roots in Confucianism
Reforms: “Black or white, a cat that can catch mouse is a good cat” – Deng Xiaoping
• Economic, political and social reforms are taking hold
“China today is affected in a special way by the West because its Communist ideology is rooted in the French Revolution, in the labors of Karl Marx writing in the British Museum in London, and in the blood of Russian Revolution.
“Communism is, to begin with, a Western product.”
- W. Scott Morton “China, Its History and Culture”,1995
China is not a traditional “communist” China is not a traditional “communist” countrycountry
Part of the national consciousness of the Chinese
The chief virtues are:
• Courtesy
• Tolerance
• Good faith
• Diligence
• Moderation
• Kindness
• Bravery
• Filial piety
China’s system is heavily influenced by China’s system is heavily influenced by Confucian valuesConfucian values
“Because of communism and Confucian beliefs in educati
on, China has a better educated population than anyone e
lse in the developing world.
China’s advantages are many. Communism and a Confuc
ian culture have reinforced each other’s interest in educat
ion.
China is both better educated and more broadly educated.
”
-Lester Thurow, “Fortune favors the bold, what we must do to build a new and lasting global prosperity”,
HarperBusiness 2003
China’s system is a unique blend of Eastern China’s system is a unique blend of Eastern and Western valuesand Western values
Contribution to GDP by SOEs
0% 20% 40% 60% 80% 100%
1998
1978
% of GDP
Changing economic mix
Less reliance on state-owned enterprises
Greater emphasis on private enterprises
China economy is moving from being China economy is moving from being centrally planned, to market-drivencentrally planned, to market-driven
Acceleratedjob
Creation
Sustainable&
StableGrowth
PropertyRights
Revolution
LevelPlaying
Field
StrongerExports
Strongerdomestic
Consumption
Private SectorProductivityRevolution
ExpandingmiddleClass
Acceleratedtechnology
Transfer
China’s New RevolutionsChina’s New Revolutions
-“China’s Economic Outlook, 2003 and Beyond”,MasterCard International, 7/2003
China’s economic reforms are happening on China’s economic reforms are happening on many frontsmany fronts
Transformation of government functions to separate enterprise operations
Government by laws
• Enhance legislative functions
• Enforce law with power
• Independent supervision of law enforcement
China is gradually introducing limited democratic reforms
• Party officials have been encouraged to debate and even critique the work of top leaders
• Multi-candidate elections, though, are held only in villages
China is reforming politically, including China is reforming politically, including experimenting with democratic principlesexperimenting with democratic principles
Real GDP has grown an average 9.4 percent a year
since 1979. China’s growth performance stands out against the
enormous structural transformations and external
challenges.
Using the official poverty line, the number of poor
people is estimated to have fallen from about 200
million 1981 to 34 million in 1999. Using the World Bank’s $1/day consumption measure,
the number of poor declined from 360 million in 1990 to
223 million in 1999 (and 161 million in 2002)
Growth
Poverty
-“ Promoting Growth with Equity, Country Economic Memorandum for China”, World Bank, 9/2003
The effects of social reforms are beginning The effects of social reforms are beginning to manifest themselvesto manifest themselves
Political Myth #2Political Myth #2
““The Dragon is ready to strike”: The Dragon is ready to strike”: China is a threat to the worldChina is a threat to the world
Political Myth #2: Political Myth #2: “The Dragon is “The Dragon is ready to strike”: China is a threat ready to strike”: China is a threat to the worldto the worldThe Real Story:The Real Story:
Protection of sovereignty
The “sweet and sour” effects of China
Unfortunately, China is more feared than emulated beca
use it has the size to be everyone’s major competitor in t
he third world.
-Lester Thurow, “Fortune favors the bold, what we must do to build a new and lasting global prosperity
”, HarperBusiness 2003
Protection of SovereigntyProtection of Sovereignty
In general, commodity exporters and exporters of
sophisticated goods and services gain, while other
labor–abundant countries lose.
-Martin Wolf, “The world must learn to live with a wide-awake China”, Financial Times, 11/12/2003
China’s “sweet and sour” effects on the China’s “sweet and sour” effects on the worldworld
• Social Myths Social Myths
• Political Myths Political Myths
• Economic Economic MythsMyths
1.1.CHINA DE-MYSTIFIEDCHINA DE-MYSTIFIED
Economic Myth #1Economic Myth #1
China’s economic growth is a China’s economic growth is a modern miracle modern miracle
Economic Myth #1: Economic Myth #1: China’s economy China’s economy is a modern miracleis a modern miracle
The Real Story:The Real Story:
Following same pattern as other Asian countries
Difference from other Asian economies such as Japan and the NIC’s
Although a large economy, not going to be a “rich” country
What keeps China awake at night?
All of the successful economies of East Asia in the last h
alf century have followed the Japanese pattern.
Starting with large labor forces, they organized themselv
es to produce very high savings rates so they could affor
d massive investments in new capital equipment.
China, with its internal savings rate of 30 percent, is only
the most recent example of a country on this path.
-Lester Thurow, “Fortune favors the bold, what we must do to build a new and lasting global prosperity”,
HarperBusiness 2003
China is following the same growth pattern China is following the same growth pattern as as other Asian countriesother Asian countries
China has largely avoided mercantilism of Japan and other Asian countries, resulting in a more open economy
• Foreign manufacturers of autos, telecom equipment, and computers dominate the Chinese market
• In 2002, the stock of FDI in Japan was only $60bn, compared with $448bn in China
While China has a large trade surplus with the US, overall trade is not far from being balanced.
• 12 months to April 2003, overall surplus was $36bn
• According to IMF, its current account surplus this year will be only some $19bn.
At the same time, China is very different At the same time, China is very different from other Asian economies, like Japanfrom other Asian economies, like Japan
Even if China’s GDP increased 600% in the last 23 years, China’s 2002 GDP is only 1/4 of Japan’s, which has gone through 10 “lost” years.
In 2000, GDP per capita was $848, compared with US’ $29,240, Japan’s $32,350.
China $44.45 Russia 5.87U.S. 35.16 Britain 3.78India 27.80 Germany 3.60
Japan 6.67 France 3.15
Brazil 6.07 Italy 2.06
Global RepositioningEstimate of world’s largest economies in 2050
Trillions of Dollars
-Goldman Sachs & Co. BusinessWeek 10/27/2003
Even if China becomes a large economy, Even if China becomes a large economy, it won’t be a “rich” countryit won’t be a “rich” country
1980-901990-00
Eastern RegionEastern Region• Shanghai (H) 30,805 7.4 12.2• Guangxi (L) 4,264 7.2 7.2 11.6
Central RegionCentral Region• Heilongjiang (H) 7,660 6.9 8.4• Jiangxi (L) 4,673 1.2 8.8 11.7
Western RegionWestern Region• Xinjiang (H) 6,653 11.1 9.7• Guizhou (L) 2,463 2.7 9.5 8.7
H/L Ratio
1999
Per CapitaGDP Growth Rate
GDP (RMB)
Income Disparity : Not Yet Critical, But ……...Income Disparity : Not Yet Critical, But ……...
-“China’s Economic Outlook, 2003 and Beyond”,MasterCard International, 7/2003
The income disparity is not yet critical, The income disparity is not yet critical, but has not improvedbut has not improved
-“China’s Economic Outlook, 2003 and Beyond”,MasterCard International, 7/2003
6 provinces in the coastal zone account for
• 80% of exports
• 89% of export incomes
• ¼ of total population (about 338 million)
• Per capita export of US$762
Infrastructure development in the interior
• Accelerate urbanization
• Average labor cost in the mid & upper Yangtze River Valley is 30-50% lower than the coastal region
There are vast differences between regions There are vast differences between regions in Chinain China
Economic Myth #2Economic Myth #2
China is a third-world country China is a third-world country
Economic Myth #2: Economic Myth #2: China is a third-China is a third-world countryworld country
The Real Story:The Real Story:
Fastest advancing infrastructure “Great leap forward”: Generational leaps in te
chnology Phenomenal eBusiness and wireless growth
• China’s has many transformative infrastructure projects
– China is developing into an energy powerhouse
– Transportation lines are expanding at dizzying rate
NOTEABLE QUOTABLE:
“China is definitely becoming a good model in developing its infrastructure”
- Heinrich von Pierer, CEO (Siemens)
- Economist, CCW Research, 3J Research, Symbio
NOTEWORTHY FACT: Shanghai is the first city in the world to have a Maglev train
China’s financial capital Shanghai was the first city in the world to build a magnetic levitation train – the most advanced train in existence.
China has the fastest advancing China has the fastest advancing infrastructureinfrastructure
16900
26500
46000
68000
0
10000
20000
30000
40000
50000
60000
70000
2000 2001 2002 2003
Chinese Internet Users
Unit:1000 Users
-IT Time Weekly, Beijing China 10/20/2003
China’s use of technology is growing at a China’s use of technology is growing at a phenomenal ratephenomenal rate
Economic Myth #3Economic Myth #3
““China is responsible for Western China is responsible for Western job losses”: Like other Asian job losses”: Like other Asian economies, China is a net exportereconomies, China is a net exporter
Economic Myth #3: Economic Myth #3: “China is “China is responsible for Western job responsible for Western job losses”: Like other Asian losses”: Like other Asian economies, China is a net exportereconomies, China is a net exporter
The Real Story:The Real Story:
China imports a great deal
China actively involves foreign participation
China is losing even more manufacturing jobs than the US
China imports more than Japan, even though its economy is one-third of the size.
U.S. shipments rose by over 20% in the first seven months of this year .
-BusinessWeek 10/23/2003
This year China has gobbled up foreign goods at breakneck speed. This has made China the largest contributor to export recovery in Asia, supporting global growth.
-Financial Times 11/11/2003
China imports a great dealChina imports a great deal
Abundant inflows of capital are a catalyst for management know-how and technology innovations
• Foreign Direct Investment (FDI) has totaled over $50 billion every year for the previous 3 years
– $52.7 billion in 2002; pledged FDI of $82.7 billion for 2003
• Over 100 R&D centers in China owned by large tech multinationals
– Over $100 Billion invested to date in R&D centers
– Expected to double by 2005
“In China, there are so many talented workers and engineers, and we need to be part of China to better understand the local market”
- Guy Sene, Vice President Agilent Technologies
- Wall Street Journal, Dow Jones Newswires, World Bank
China actively involves foreign China actively involves foreign participationparticipation
It's a global trend that manufacturing jobs are
decreasing, even in China.
Special attention to be paid to the fact that although the
US lost 11% of the jobs, but this percentage is still
smaller than the 20% in Brazil, 16% in Japan and 15% in
China.
- Wall Street Journal,
10/20/2003
China is losing manufacturing jobs as wellChina is losing manufacturing jobs as well
““SILK ROAD 2003, UNDERSTANDING CHINA IN SILK ROAD 2003, UNDERSTANDING CHINA IN
A GLOBALISING WORLD”A GLOBALISING WORLD”
1.1. CHINA DE-MYSTIFIEDCHINA DE-MYSTIFIED
2.2. OPPORTUNITIESOPPORTUNITIES
3.3. FORTUNE FAVORS THFORTUNE FAVORS THE BOLDE BOLD
More Chinese goods in India, Indians working in Tokyo or Kuala Lumpur – flows of people and ideas
Intra-regional trade – in services as well as in manufactured goods – is growing rapidly.
In contrast to the European Union or North America, companies and investors, rather than governments, are the driving force
Opportunity #1: Opportunity #1: East Asia is becoming one East Asia is becoming one common market: (ASEAN + 3 Agreement) common market: (ASEAN + 3 Agreement)
Workshop of the World
Increasingly an R&D center
FACT: Chinese cars that cost as little as $6,000 will arrive in the United States before long.
Opportunity #2: Opportunity #2: China as a production base China as a production base
“The basic direction of China’s economic development i
n the first 20 years of the 21st century is for industrializat
ion, urbanization and marketization.
-Wang Mengkui, Director of the State Council Development Research Centre, 200
3
Durable goods and raw materials
IT products
Fastest rising per capita incomes
WTO pressures for Chinese companies
Opportunity #3: Opportunity #3: China as a market for China as a market for localized products and services localized products and services
Share in total Chinese imports from major partner countries (%)Instruments
8%
Chemical8%
Plastic andrubber
7%
Textile5%
Metals10%
Electronics27%
Machinery andvehicles
27%
Agriculture5% Minerals and
fuels3%
- UBS Investment Research, Asian Economic Perspectives, 9/29/2003
Durable goods and raw materials comprise the Durable goods and raw materials comprise the largest sector of the marketlargest sector of the market
– China’s purchases of IT hardware, software and services reached nearly $14 billion in 2001
– China already leads PC sales growth and volume in Asia, and will become the second largest market in the world by 2006
– China will become Intel’s largest customer this year
% of Companies/ InstitutionsIndustry/ Sector with Higher 2003 Budgets
Government - Social Security Agencies 78%Government - Tax Agencies 49%Government - Public Security Agencies 69%Manufacturing 24%Banking 62%Insurance 40%Education 27%Public Sector 53%Source: CCW Research (Beijing)
NOTEWORHTY FACT: Most major industries and sectors in China will accelerate IT spending this year
- People’s Daily, CCID Research, Ministry of Information Industry, CCW Research
The sector for IT products is becoming one of the The sector for IT products is becoming one of the largest in the worldlargest in the world
There is an expanding middle class (defined as house
holds earning more than RMB 35,500 or US$4,300 a y
ear).
About 90 million people, equaled to the combined po
pulation of France and Canada, and this Chinese pop
ulace is expected to grow at around 40% a year.
-McKinsey & Company,2002
China’s consumer market is surgingChina’s consumer market is surging
e.g. Honda expects China to surpass Europe as its 3rd largest market after US and Japan by 2005
190
280260
300
May2002
March2003
May2003
July2003
January1997
indexedas 100
-“China’s Economic Outlook, 2003 and Beyond”,MasterCard International, 7/2003
Domestic consumption growth is building Domestic consumption growth is building momentummomentum
Based on WTO, China will open finance, insurance, brok
erage, telecom, distribution, travel, accounting, law, hos
pital, education, transportation, logistics.
-Communique by the 3rd plenary session of the 16th Central Committee of the Communist party of China, 10/14/2003
Banks, brokerage and insurance will be the greatest opp
ortunity for the foreign players.
-Jonathan Woetzel, “Capitalist China”,2003
China’s service industry is experiencing China’s service industry is experiencing explosive growthexplosive growth
"China offers the most exciting opportunity in the securiti
es industry in this decade" -Michael O'Conor, chairman of FIX Protocol Limited (FPL) and managing director at Merrill Lynch
FIX expects to be adopted in the China market in the near
future. The stock exchanges in Shanghai and Shenzhen h
ave been upgrading their trading and settlement platform
s.
WTO pressures for Chinese Companies are WTO pressures for Chinese Companies are driving companies to seek best-of-breed solutionsdriving companies to seek best-of-breed solutions
““SILK ROAD 2003, UNDERSTANDING CHINA IN SILK ROAD 2003, UNDERSTANDING CHINA IN
A GLOBALISING WORLD”A GLOBALISING WORLD”
1.1. CHINA DE-MYSTIFIEDCHINA DE-MYSTIFIED
2.2. OPPORTUNITIESOPPORTUNITIES
3.3. FORTUNE FAVORS THE BOLDFORTUNE FAVORS THE BOLD
FORTUNE FAVORS THE BOLDFORTUNE FAVORS THE BOLD
How can Ireland maintain its tech
leadership?
How can Ireland move from being Euro-
centric to globally integrated?
How can Ireland “GLOCALIZE”?The People's Republic of China, had stated a goal in 2001 to produce more world-class engineers.
Do we have the national will to take productive action? When the problem becomes obvious, it will be too late.
-Andy Grove , Forbes.com , 2003
FORTUNE FAVORS THE BOLDFORTUNE FAVORS THE BOLD
Our Recommendations:Our Recommendations:
Partner with Chinese companies
Sell services to Chinese multinationals
Lack of name brand recognition and loyalty in China posts big opportunity for Western SME’s
Integrate China into your entire business life-cycle
Send your best army…
Let China sleep,
for when she wakes,
she will shake the world
-Napoleon Bonaparte
Send your best armySend your best army
Something to Think About:
In 1799, China was 44% of the world’s GDP
In 1900, China was 7% of the world’s GDP
Today, China is only 3.5% of the world’s GDP
For further information:
Email: [email protected]
Closing RemarksClosing Remarks
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