What Happened in China?

My Sabbatical Semester in Peking University

“Why China?”

Ten years ago, that’s the one question that I would have been asked to address when people talked with me about U.S.-China business-related issues. But nobody asks that question any more when I talk to them today. In the last decade, the question has gone from “why” to “where, when, and how?”

Prof. Wang

Hosting the US-China Small Business Forum, at Sheraton New York, with over 600 attendees.

The increased attention toward China has been evidenced in every aspect of the news The New York Times media for the past decade, from the headlines of The Wall Street Journal and to policy proposals in the campaigns of political leaders and the popularity of China-related events taking place in the U.S. Since the beginning of the last year, I have been invited to speak on China-related issues at various conferences and seminars, including the Wharton China Business Forum at UPenn, a national diversified supply-chain manufacturers’ alliance conference in Chicago, a U.S. and European metal industries’ semi-annual conference at the Athletic Club in Manhattan, the U.S.-China Financing and Investment Forum at Columbia University, and the Zhejiang-USA Business Week at the Sheraton New York, among others.

At every event I’ve attended, the level of interest of the attendees (which were always numerous) was overwhelming. In particular, the Zhejiang-USA Business Week event last October attracted more than 1,400 attendees in New York, Chicago, Philadelphia, Maryland, and Washington, DC. In New York alone, over 600 people attended the event. As the executive chair of the event, I had been honored to have such distinguished speakers and participants as NYC Deputy Mayor Steve Goldsmith, NYCEDC President Seth Pinski, NASDAQ Chairman Furlong Baldwin, Goldman Sachs Vice Chairman Michael Evens, JP Morgan Vice Chairman for Global Corporate Banking Peter Lighte, and Associate Dean of the Wharton Business School Jason Wingard, just to name a few.

But the question is what actually happened in China that attracted so much attention in the U.S. and the world. Using the opportunity of my sabbatical leave from CSI, I went to teach at the HSBC Business School at Peking University and speak at different conferences and seminars in China. During that time, I got some first-hand knowledge and experience about what happened in China, including the issues and the challenges they are facing today.

Without a doubt, China’s economic growth in the past decades has taken the world aback. China has achieved an more than nine percent annual GDP growth for the past 30 consecutive years, ranking its total GDP second only after the U.S. Chinese GDP per capita also increased from about USD $400 to about $3,000. As a consequence, the Chinese people’s quality of life has significantly improved. Beautiful, modern cities have been built almost “overnight,” and tremendous opportunities have been produced for business communities around the world. Over 95% of the World Fortune 500 companies have entered into the Chinese market, and China‘s FDI (foreign direct investment) receipts have been ranked among the top three since 2005. According to Nicolas Lardy, a top U.S. expert on China in a Washington, DC-based think tank, more than 50% of the Chinese exports to the U.S. are produced by companies located in China, but owned or jointly owned by U.S. and Western countries. In Lujiazhui, the financial district of Shanghai and China’s Wall Street, English is the language you hear most often. I was once invited to give a talk at a UBS/China joint venture in Lujiazhui. The head of the JV is a NYU Stern-trained MBA, and over 100 employees from China, India, and some other countries all speak English. When I was in China, I saw a lot of foreigners working in China. At Peking University alone, visiting professors staying in PKU guest house, as my neighbors, included the former President of Cornell University, the Associate Dean of the Yale Law School, and well-known law professors from Harvard, Michigan, and Virginia.

Prof. Wang & Robert Mundell

Moderating the US-China Financing and Investment Forum at Columbia University, with Robert Mundell, a Nobel Laureate, University Professor of Columbia University, and Founding Father of Euro and famous Mundell and Fleming Model.

However, while China’s economic achievement has stunned the world, China also faces tremendous challenges in its economic development. The four trillion RMB ($1 = 6.4RMB) pumped in by the Chinese central bank during the 2008-2009 crisis in an attempt to pull the economy out of recession is now coming back to fuel rising inflation. The huge trade surplus it has versus the rest of the world has been generating an increased amount of money over-supply year after year, due to its special currency administration system. Environmental protection, food safety, and the improvement of labor working conditions all appear to be daunting challenges for China’s economy. More fundamentally, China’s high-speed growth was largely investment and export driven over the past 30 years. However, with U.S. and European economies weakened by recession and financial crisis, China’s traditional export-oriented growth model is simply not sustainable. The lack of adequate domestic demand, caused partially by increasingly unequal income distribution, as evidenced by a Gini Index of close to 0.5 (it is about 0.4 in the U.S.), and an under-developed social security system, has generated over-capacity in many industries nationwide. In particular, an under-developed financial market may plant the seeds for the Chinese version of financial crisis in the near future. In the age of globalization, all of these issues will generate tremendous influence, either positive or negative, on the world economy, because all markets now are inter-connected and integrated.

It wouldn’t be an overstatement to say that the U.S.-China relationship is now one of the most important country-to-country relationships of the century. Understanding what has happened and what is happening in China is the first step in constructing a positive U.S.-China relationship, one that will be beneficial not just for the two countries, but for the welfare of the entire world.

Article By J. George Wang, Business Department

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