"China's growth is a tougher event than anything we faced since World War Two" - Jeffrey E. Garten, Dean, Yale School of Management

China's growth has been very high in the last years, and we can feel it everywhere. China and Russia had a similar politic and economic situation a few years ago and I am trying to understand how the Chinese made possible this growth, compared to Russia. What I learnt today is that one of the reason of China's success is that Russia changed at the same time its politics system and its economy, where China moved to a market economy keeping a very stable political system. I agree, I think that doing both at the same time has created many unexpected issues in Russia.

China has grown at 8% per year for many years, it is the sixth economy in the World. The standard of living has improved dramatically with an average per capita income above $1000, it was only $300 twenty years ago. 400 million Chinese are now above the global poverty line.

What strikes me the most is how unprepared the US and Europe are to China's growth. The impact of China's economic development is now already huge on the Global Economy. The first consequence that is very often seen is of course jobs being transferred to China but the impact of China's internal demand for energy for example is equally important, China is for example now the second largest importer of oil and second largest electricity consumer. This has an impact on global energy prices and it will only increase.

I think generally in the USA and Europe we do not realize the impact of China's growth and we are totally unprepared because of the speed at which the change happens. It is impossible for Countries and people used to live in comfort to react to this new competition at the same pace.

Vice-premier of the People's Republic of China Zeng Peiyan shared with us today his vision of China becoming a 4 trillion dollar GDP Country by 2020. I was impressed by how many times the word Entrepreneur was quoted. China is definitely committed to creating an open door market environment favorable to Entrepreneurs and private companies. Another reason of China's success has been its shift towards accepting foreign investments. China has been the Country in the World that has received the largest investments last year, ahead of the US and the participation of many international investors and venture capital firms to this Summit shows their interest and their willingness to invest in China. Many new funds are created to invest only in China and I met many investors who where focusing before on the US or Europe that moved here. Robert Yung for example used to work for Intel in the USA and he is now based in Beijing, raising a $75M private equity fund totally dedicated to early stage Chinese startups. In the Technology session, Robert said that five of the ten most successful IPOs at the Nasdaq recently have been Chinese (Robert quoted SINA or SOHU for example), some of them are multi-billion dollar market cap companies and he predicts we will soon see the first ones that are valued above ten billion dollar.

The technology education available in China is according to Robert to World Class Standards. China graduates 2 to 2.5 million students a year and 60% of them are in the technology sector, where India graduates 1 million for 50% in technology and the USA 2 million a year with only 25% in technology.

We mostly think about toys or clothes production when we think about China. China has become the manufacture of the World but with such high standards of education and such a high number of highly qualified technology graduates China is now ready to move to the next step and create World Class leaders and companies. It would be a big mistake to consider China's competition to the US, Europe and Japan as low cost subcontracting capabilities only. The innovation capability I have felt all around these days, the speed at which information circulates in today's information Society and the level of globalization enables China to move from the positioning of the manufacture of the World into the fastest growing innovation center of the World. Microsoft's head of Research in Asia Harry Shum insisted on the contribution of his Chinese team into new Microsoft's worldwide products. I quite agree when the Technology panel said that the question is not if China will be the R&D center of the world, the question is when.

Seen from the US and Europe, the threat is generally understood as loosing jobs subcontracted in China. It should probably be understood more as new fast moving Chinese companies created and not only addressing their local market but becoming new leaders. I had a great dinner with the New Asian Leaders which is a very active community of young entrepreneurs and investors of the World Economic Forum and they are not wondering how they will increase their revenues by getting more business from subcontracting but rather how they can help building new Chinese World leaders.

Of course there are also important challenges ahead and Jeffrey E. Garten, Dean of Yale School of Management said that "the whole movement of globalization is going to slow down. China's growing impact on global manufacturing is going to put enormous pressure to western economies and it turn put enormous pressure to China." Mr Garten does not see China's growth to continue without a major crisis in the next years.

It is absolutely possible, but the energy and the fast pace we can all feel both at a Government and an Entrepreneurial level in China is incomparable with the way Europe for example got used to live in comfort.

The reaction of the USA and Europe could be to protect their markets from this threat for their economies and Kristin Forbes of the Office of the President of the United States insisted on the fact that free trade was the only way to go and that building trade barriers was useless. I agree, but the impact will be so huge on jobs and on the competitiveness of European and US companies that it will become harder and harder for Governments not to react.

How do you feel China's growth impact in your Countries and what do you think should be the reaction of both US and European Governments and businesses to this new situation ?

You can read summaries of most sessions on the World Economic Forum's website.

-Loïc Le Meur

Comments

[Will Smith]

www.9spaces.com has an interesting interview with Joseph J. Borich, former Consul General in Shanghai concerning China 2007: Economic Outlook, US Business Interests, and US-China Relations.

http://www.9spaces.com/en/china-expert-interview/Joe-Borich-2123.jsp

[Kem]

well, i'd like to say this is a good article.

[Tim Burroughs]

Mr. Garten should read a great new book on Chinese business by 2 professors in Connecticut (might be his neighbors?) "The Chinese Tao of Business": http://www.chinesetao.com

[tyler]

Thats pretty unbelievable how china is so over populated!

[Dimitar Vesselinov]

China: the New Advanced Technology Research Hotbed

http://slashdot.org/articles/04/09/14/1656247.shtml?tid=126

[Dimitar Vesselinov]

Asia’s new R&D leader

"China is fast becoming a competitor with India for technological development. Louise do Rosario reports on the global players entering the Chinese R&D market."

http://www.fdimagazine.com/news/fullstory.php/aid/626/Asia%92s_new_R_D_leader.html

[Jeff Clavier]

The New York Times actually published today an interesting piece "Let a Thousand Ideas Flower: China Is a New Hotbed of Research", taking the Microsoft Research Lab, that Loic also referred to in his post, as a reference.

It provides interesting insights about the trend, but also the challenges companies are facing, building R&D labs in China.

[Sophie]

"Ti's life cycle, after destruction you have to rebuild."

The question that pops in my mind is : with which fossil fuels, materials and ores will we rebuild ?

World growth and population are putting extreme pressure on the planet, China is buying most of the world's steel at the moment (according to Richard Serra), and lots of oil.

Some issues are discussed here : http://www.locusmag.com/2004/Features/09_ShirleySocialFuture.html, but the point of view is too narrowly US. News from China broaden the discussion but the issues remain.

[Ingmar Bornholz]

Building barriers has no sense: you wold stop all technology development which comes from china: they are at they edge, and will go further. The only chance is to build up strategic partnerships, so that you won´t lose the pace they will go in the future. One should analyze how you can cooperate in the best way: produce in or sell to china? It just depends. Both sides can have their profit.

[Olivier Travers]

Let's remain cool-headed, sweeping statements similar to "the question is not if China will be the R&D center of the world, the question is when" have been proven wrong in the past. Remember how in the 80's Japan was to take over the world and overtake the US. It never happened. China is facing tremendous environmental, demographical and social challenges. Of course the people you met are giddy, they're experiencing a lot of growth and new money... but there was tremendous excitement in San Francisco in the last 90's too. Regarding Foreign Direct Investments, are they a leading or trailing indicator? For now, the contracted amount of money is still increasing, but at the same time a significant part of that money is actually not invested in the end because many deals go wrong:
http://www.economist.com/research/articlesBySubject/displayStory.cfm?story_ID=3070497&subjectid=478048

In the meantime, there's no denying China is seriously kicking western ass. It seems people in America are more aware of it than Europeans (but they're more exposed too, given their huge trade deficit with China). Here's hoping western countries wake up and China doesn't crash!

[laurent bervas]

The problem is not how to stop the wave but how to use this energy :
There are opportunities for EU companies inside and outside China.

There will be some destructions in (old) Europe. Maybe it's a necessity :
Ti's life cycle, after destruction you have to rebuild.

[Dimitar Vesselinov]

Can we understand the accelerating change?
Are we ready for the biggest trasformation in the human history?

http://www.kurzweilai.net/index.html?flash=1

http://roboticnation.blogspot.com

http://www.singularitywatch.com