Transcript Silk Road 2003 - Localisation Research Centre

Silk Road 2003
Understanding China in
a Globalising World
The 8th Annual LRC Conference
Joseph T. Hsu, CEO
The Symbio Group
www.symbio-group.com
“SILK ROAD 2003, UNDERSTANDING CHINA IN
A GLOBALISING WORLD”
1. CHINA DE-MYSTIFIED
2. OPPORTUNITIES
3. FORTUNE FAVORS THE
BOLD
CHINA 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. CHINA DE-MYSTIFIED
•
Social Myths
•
Political Myths
•
Economic Myths
Social Myth #1
“A phoenix rising”: China is a new
emerging superpower
Social Myth #1: “A phoenix rising”: China
is a new emerging “superpower”
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”
nation in the world
China’s GDP as % of the world, dominant
in 90% of the last 2000 years
China
Europe/US
Others
100%
90%
80%
70%
60%
The entire world economic
order was – literally –
Sinocentric until the 18th
century. Christopher
Columbus and after him
many Europeans up until
Adam Smith knew that.
50%
China’s balance of trade and
payments surplus continued
into the early 19th century.
40%
30%
20%
10%
0%
100
1000
Year, AD
1500
- Deutsche Bank
1600
1700
1820
1978
2000
Based on US $ of 1990
-Andre Gunder Frank, Global Economy
in the Asian Age,University of
California Press, 1998
China has a long civilization
“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
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 Gutenberg
Bible

Chinese landscape paintings emerged as a form of art several
hundred years ahead of Europe
China has a robust recorded history
“Details of life in the second millennium B.C., conversations of the sixth
century B.C., and letters of the first century A.D. and the like have been
preserved, and thousands and thousands of local gazetteers about local
conditions have been 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 16th century, China and the West took
two very different courses
While the West
experienced…
…China went the other way and
shut its door to the outside world
 Industrial
Revolution
 Starting in 1434, Ming empire halted
the great maritime expansion
 Religious
reform
 Ching Emperor made “craftsman”
and “merchant” the lowest
professions for Chinese citizens
 Renaissance
 Emergence of
the US
 Ching Emperor told King George III
that China had “no use for your
country’s manufactures”
“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 #2
“Everyone looks alike”: China has
a homogeneous culture
Social Myth #2: “Everyone looks alike”:
China’s culture is homogeneous
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
are practices traveled eastwards on the Silk Road, to be followed centuries
later 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 nationalities
China shares its borders with the most countries
1. CHINA DE-MYSTIFIED
•
Social Myths
•
Political Myths
•
Economic Myths
Political Myth #1
“The East is Red”: China is a rigid
communist state
Political Myth #1: “The East is Red”:
China is a rigid communist state
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 is not a traditional “communist” country
“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’s system is heavily influenced by Confucian
values
 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 a unique blend of Eastern and
Western values
“Because of communism and Confucian beliefs in
education, China has a better educated population than
anyone else in the developing world.
China’s advantages are many. Communism and a
Confucian culture have reinforced each other’s interest in
education.
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 economy is moving from being centrally
planned, to market-driven
Contribution to GDP by SOEs
 Changing economic mix
1978
 Less reliance on stateowned enterprises
 Greater emphasis on
private enterprises
1998
0%
20%
40%
60%
% of GDP
80%
100%
China’s economic reforms are happening on many
fronts
China’s New Revolutions
Property
Rights
Revolution
Level
Playing
Field
Accelerated
technology
Transfer
Private Sector
Productivity
Revolution
Accelerated
job
Creation
Stronger
Exports
Sustainable
&
Stable
Growth
Stronger
domestic
Consumption
Expanding
middle
Class
-“China’s Economic Outlook, 2003 and Beyond”,MasterCard International, 7/2003
China is reforming politically, including
experimenting with democratic principles
 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
The effects of social reforms are beginning to
manifest themselves
Growth
Poverty
 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)
-“ Promoting Growth with Equity, Country Economic Memorandum for China”, World Bank, 9/2003
Political Myth #2
“The Dragon is ready to strike”:
China is a threat to the world
Political Myth #2: “The Dragon is ready
to strike”: China is a threat to the world
The Real Story:
 Protection of sovereignty
 The “sweet and sour” effects of China
Unfortunately, China is more feared than emulated
because it has the size to be everyone’s major
competitor in the third world.
-Lester Thurow, “Fortune favors the bold, what we must do to build a new and lasting global prosperity”,
HarperBusiness 2003
Protection of Sovereignty
China’s “sweet and sour” effects on the world
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
1.CHINA DE-MYSTIFIED
•
Social Myths
•
Political Myths
•
Economic Myths
Economic Myth #1
China’s economic growth is a
modern miracle
Economic Myth #1: China’s economy is a
modern miracle
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?
China is following the same growth pattern as
other Asian countries
All of the successful economies of East Asia in the last
half century have followed the Japanese pattern.
Starting with large labor forces, they organized
themselves to produce very high savings rates so they
could afford 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
At the same time, China is very different from
other Asian economies, like Japan
 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.
Even if China becomes a large economy,
it won’t be a “rich” country
Global Repositioning
Estimate of world’s largest economies in 2050
Trillions of Dollars
China
U.S.

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.
$44.45 Russia
5.87
35.16 Britain
3.78
India
27.80
Germany
Japan
6.67
France
3.15
Brazil
6.07 Italy
2.06
-Goldman Sachs & Co. BusinessWeek 10/27/2003
3.60
The income disparity is not yet critical,
but has not improved
Income Disparity : Not Yet Critical, But ……...
1999
Per Capita
Eastern Region
• Shanghai (H)
• Guangxi (L)
Central Region
• Heilongjiang (H)
• Jiangxi (L)
Western Region
• Xinjiang (H)
• Guizhou (L)
H/L Ratio
GDP Growth Rate
GDP (RMB)
1980-90
1990-00
30,805
4,264
7.2
7.4
7.2
12.2
11.6
1.2
6.9
8.8
8.4
11.7
2.7
11.1
9.5
9.7
8.7
7,660
4,673
6,653
2,463
-“China’s Economic Outlook, 2003 and Beyond”,MasterCard International, 7/2003
There are vast differences between regions in
China
 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
-“China’s Economic Outlook, 2003 and Beyond”,MasterCard International, 7/2003
Economic Myth #2
China is a third-world country
Economic Myth #2: China is a third-world
country
The Real Story:
 Fastest advancing infrastructure
 “Great leap forward”: Generational leaps in
technology
 Phenomenal eBusiness and wireless growth
China has the fastest advancing infrastructure
•
China’s has many transformative
NOTEABLE QUOTABLE:
infrastructure projects
– China is developing into an
energy powerhouse
“China is definitely becoming a good
model in developing its infrastructure”
- Heinrich von Pierer, CEO (Siemens)
– Transportation lines are
expanding at dizzying rate
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.
- Economist, CCW Research, 3J Research, Symbio
China’s use of technology is growing at a
phenomenal rate
68000
Unit:1000 Users
70000
60000
46000
50000
40000
30000
20000
26500
16900
10000
0
2000
2001
2002
2003
Chinese Internet Users
-IT Time Weekly, Beijing China 10/20/2003
Economic Myth #3
“China is responsible for Western
job losses”: Like other Asian
economies, China is a net exporter
Economic Myth #3: “China is responsible
for Western job losses”: Like other Asian
economies, China is a net exporter
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 a great deal
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 actively involves foreign participation
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 is losing manufacturing jobs as well
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
“SILK ROAD 2003, UNDERSTANDING CHINA IN
A GLOBALISING WORLD”
1. CHINA DE-MYSTIFIED
2. OPPORTUNITIES
3. FORTUNE FAVORS THE
BOLD
Opportunity #1: East Asia is becoming one
common market: (ASEAN + 3 Agreement)
 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 #2: China as a production base
 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 #3: China as a market for
localized products and services
 Durable goods and raw materials
 IT products
 Fastest rising per capita incomes
 WTO pressures for Chinese companies
“The basic direction of China’s economic development
in the first 20 years of the 21st century is for
industrialization, urbanization and marketization.
-Wang Mengkui, Director of the State Council Development Research Centre, 2003
Durable goods and raw materials comprise the
largest sector of the market
Share in total Chinese im ports from m ajor partner countries (%)
Instruments
Agriculture
8%
Minerals and
5%
Machinery and
fuels
vehicles
3%
27%
Chemical
8%
Plastic and
rubber
7%
Textile
5%
Electronics
27%
Metals
10%
- UBS Investment Research, Asian Economic Perspectives, 9/29/2003
The sector for IT products is becoming one of the
largest in the world
– 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
Industry/ Sector
NOTEWORHTY FACT:
Most major industries
and sectors in China
will accelerate IT
spending this year
Government - Social Security Agencies
Government - Tax Agencies
Government - Public Security Agencies
Manufacturing
Banking
Insurance
Education
Public Sector
% of Companies/ Institutions
with Higher 2003 Budgets
78%
49%
69%
24%
62%
40%
27%
53%
Source: CCW Research (Beijing)
- People’s Daily, CCID Research, Ministry of Information Industry, CCW Research
China’s consumer market is surging
There is an expanding middle class (defined as
households earning more than RMB 35,500 or
US$4,300 a year).
About 90 million people, equaled to the combined
population of France and Canada, and this Chinese
populace is expected to grow at around 40% a year.
-McKinsey & Company,2002
Domestic consumption growth is building
momentum

e.g. Honda expects China to surpass Europe as its 3rd largest
market after US and Japan by 2005
280
300
260
190
January
1997
indexed
as 100
May
2002
March
2003
May
2003
July
2003
-“China’s Economic Outlook, 2003 and Beyond”,MasterCard International, 7/2003
China’s service industry is experiencing
explosive growth
Based on WTO, China will open finance, insurance,
brokerage, telecom, distribution, travel, accounting, law,
hospital, 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
opportunity for the foreign players.
-Jonathan Woetzel, “Capitalist China”,2003
WTO pressures for Chinese Companies are
driving companies to seek best-of-breed solutions
"China offers the most exciting opportunity in the
securities 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
have been upgrading their trading and settlement
platforms.
“SILK ROAD 2003, UNDERSTANDING CHINA IN
A GLOBALISING WORLD”
1. CHINA DE-MYSTIFIED
2. OPPORTUNITIES
3. FORTUNE FAVORS THE BOLD
FORTUNE 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 BOLD
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 lifecycle
 Send your best army…
Send your best army
Let China sleep,
for when she wakes,
she will shake the world
-Napoleon Bonaparte
Closing Remarks
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]