OCT 31 — Last Saturday, I delivered a paper at a Symposium at Peking University in celebration of the 10th anniversary of collaboration between NUS Business School and Peking University's Guang Hua Business School for their joint MBA programme. I was asked to speak on “Towards Asian Renaissance: The Rise of China”. I did not think I was qualified or possessed the literacy to do an academic dissertation on this still somewhat controversial and sometimes emotive proposition. So I included in the title of my talk “A Business Perspective”.
Here is a summary of my paper (not so short though!):
I first visited China in 1982 as part of a business study mission. China was then quite backward with hardly any modern airports, roads, office buildings, shopping malls or hotels in even large cities like Beijing, Shanghai or Tianjin. Almost everyone wore the standard black or grey Mao jackets, the restaurants were serving unpalatable Chinese food by rude untrained waiters earning less than 50 yuan monthly and we could only shop at Friendship Stores with FECs (Foreign Exchange Certificates). Industries were atrociously backward. China was sadly a different world then.
In early 1993, I started to do some development project management business there. We started investing heavily in real estate business in China from 1994 till now. Today we are developing and operating condominiums, shopping malls, office buildings, mixed development like Raffles City, service residences in 47 cities in China with 4,300 employees. Presently China represents some 30 per cent of our total global business. What is our past regret in China? We should have done more there.
Human capital will pose the ultimate challenge...
Human resource is not human capital yet. China will have 25 million tertiary students in 2010 but by this time China will need 75,000 top level executives with global experience. Where will they come from? How will they be trained?
Asia has produced the most sustained economic boom in modern history. Growth in GNP per capita from 1965 to 2007 is miraculous. China grew from S$100 (RM240) to S$2,360 per capita, South Korea from S$130 to S$19,690 and Singapore from S$540 to S$32,470 per capita.
China's share of global GDP (PPP adjusted) was less than 2 per cent in 1980 but has grown to 11.5 per cent in 2008. She has grown an average of 10 per cent per annum for the last 30 years and is forecast to overtake the US as the world's largest economy by 2027 by Goldman Sachs, and even earlier, by 2020, by the Economic Intelligence Unit.
In 1980, China was the 32nd largest exporter in the world. In 2008, she was the second largest.
In 2008, profit of the top 500 Chinese companies exceeded that of the top 500 US companies. The top 500 US companies chalked up US$98.9 billion (RM340 billion) profit compared to their Chinese counterparts, which generated US$170.6 billion profit. However Chinese companies are not branded well internationally because they are focused on industrial products on a B-to-B basis rather than B-to-C directly to the mass market.
The top two companies in China are larger in value than the top two in the US: Petrochina and ICBC are valued at US$338 billion and US$323 billion respectively, compared to US$320 billion and US$211 billion for Exxon Mobil and Microsoft respectively.
China's fast growing savings are being strategically reserved for the rainy days.
China's foreign exchange reserve was US$1.6 billion in 1980; in 2008 she had the largest foreign reserve in the world at a whopping US$2.13 trillion. This is 30 per cent of the global reserve and is now well deployed to provide stimulus to the economy.
As of August 2009, China's (including Hong Kong) US$5 trillion market value stock market is the second largest in the world. Notably, only one per cent of China's population invests in the stock market, compared to about 45 per cent of the households in the US. It is obvious that the growth potential for China's stock market is phenomenal.
Still, China faces some challenges.
The income inequality gap, if not managed, may pose social and political tension. The government can be seen to be increasing its effort to address these problems.
China is in deficit of natural resources, especially water. The world's average per capita of freshwater is 6,895 cubic metres. China has only 1,856 cubic metres per capita. Beijing, Tianjin and Shanghai are all below 150 cubic metres per capita!
China is still lagging in innovation as represented by her relatively low annual patents registration. China should move aggressively from pure R&D in science and technology towards innovation and commercialisation.
Human capital will pose the ultimate challenge.
Asia has abundant human resources, some four billion people. Human resource is not human capital yet. China will have 25 million tertiary students in 2010 but by this time China will need 75,000 top level executives with global experience. Where will they come from? How will they be trained?
My prognosis is that Asia does not train enough corporate CEOs and business leaders. Why?
Thirteen of the top 20 Asia companies are either family or state-owned, compared to one in Europe and two in the US. Family-owned businesses are more inclined to groom talent within the family or kinship, and less outsiders. State-owned companies often appoint their senior corporate positions from trusted public service or political leadership. This will just limit the supply pool of natural talents to be developed or groomed.
Still, the rise of China is unstoppable, at least for now. There will be a rebalancing of global economic power between Asia/China and the rest of the world. The world has to adapt to this new rebalance of economic power and China too has to adapt to her new role in the changing economic world to sustain its renaissance growth.
Will China be able to sustain this growth?
China has grown for 30 years but will she grow for many more years in the future? Japan has grown just as remarkably after the Second World War for 50 years to be the world's second largest economy. Unfortunately she has stagnated for the last 20 years. Given Japan's strong work ethic, her uniformity and unity of her 100 million homogenous population and her technological prowess, what has caused her seemingly unstoppable decline for the last 20 years? Likewise for the US economy. What should China do to avoid the malaises of Japan and the US? Are these just unavoidable natural cycles of economic growth and declines or are there lessons there that China can learn from to ensure that the forth coming Asian Century becomes a reality?
The Peking University students, being the future of China, will have to reflect and provide the answers to grow and sustain New China, which has just turned 60, as the imminent world's largest economic power. — Business Times Singapore
The writer is the CEO of CapitaLand.
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