vol. XVI no. 1

				An interview with Robinson Global Scholar and "Old Asia Hand" Bob Oxnam This issue of The State of Business examines ongoing changes in the economic life of China. Can you summarize the pace of change in the economic climate of the largest country in the Pacific region? I've studied China for 38 years and made close to 70 trips there. Based on that experience, I see China's economic takeoff as the most dramatic international business story of our time. You are right to speak of a "changing China" - the differences are visible every time I visit the country. During the Cultural Revolution, China was run under a strict Maoist vision with a totally state-directed economy and zero relations with the outside world. Young "red guards" were encouraged to don red armbands, leave their homes and travel about the country, attacking those who were declared bourgeois, intellectual or bureaucrat. In the late 1970s, however, a new leader emerged with a different vision. Chairman Deng Xiaoping said, "To be rich is glorious." While Deng held fast politically to the communist system, he created a seismic shift economically by encouraging rapid modernization with capitalist underpinnings. In the 1980s and 1990s, Chinese leadership set economic development as the country's highest goal, and China experienced a growth rate of 9 to 10 percent. Today, China is an active member of several global organizations, including the United Nations and the World Trade Organization (WTO). Chinese leaders still follow a state-directed capitalistic approach, which they cleverly call "socialism with Chinese characteristics." After joining the WTO in late 2001, they have opened domestic markets from agriculture to insurance. As of the Party Congress in late 2002, a new generation of municipally trained technocrats is taking over, and capitalists are encouraged to join the Chinese Communist Party. Foreign investment is welcomed, whether from overseas Chinese, Japanese, Europeans or Americans. Your career began in the field of history. How can knowledge of China's history help us in business transactions there? What specifically do we need to know about China's history to succeed? We find our best clues about the future in the past. History offers us a good forecasting tool, showing us the banks of the river through which economies will continue to flow. All cultures in Asia have much longer histories than we do in the United States. In many cases, those histories still shape the way people think about themselves. The Chinese, for example, with 5,000 years of history for us to study, have inherited a passion for education, family discipline and working together in groups. Their Confucian values are easily adaptable to modernization, and their penchant for organization makes their society ideal for business. Where is China positioned economically among the other countries of the Pacific region? Can you place China in context with its neighbors? Japan was the first Asian economy to take off in the 1960s. For two decades, Japan soared with the help of close collaboration between government and private sectors and a powerful commitment to export-led growth. In the 1970s, South Korea, Taiwan, Hong Kong and Singapore adapted the Japanese pattern and had similar success stories. Still following Japan's lead, Thailand, Malaysia, the Philippines and Indonesia joined the list of growing economic powers in the 1980s. Then, in the 1990s, giants China and India took leading roles among Asia's rapid modernizers. Japan still remains the largest economy in Asia, but China, because of its size and rapid growth, has absorbed the world's attention of late. China's twin passions for economic growth and educational achievement are certainly key to its takeoff. But its success is causing great anxiety throughout much of Asia. Many of China's neighbors fear that China will undercut domestic production in the region. If you visit Bangkok or Jakarta, it is common to hear local businesspeople converse about "the China threat." What are the factors that led to China's phenomenal takeoff as a geoeconomic power? Certainly it all began with a top-down approach, an obsession with modernization spearheaded by Deng Xiaoping and continued by his successors, Jiang Zemin and now Hu Jintao. But China's other advantages were also critical: rich natural resources, an almost limitless labor market and a 90 percent literacy rate. China also has a great supply of foreign direct investment from some 50 million Chinese who live outside of the mainland in Hong Kong, Taiwan and southeast Asia. And at the grassroots level, the Chinese have been propelled by their innate entrepreneurship and a sense of business nationalism. What are the problems that threaten China's continued advance? For all its successes, China has many serious headaches. For instance, China's banking system would only make Josef Stalin proud. Its four major banks are based on the old Soviet socialist model; currently, nonperforming loans constitute close to 50 percent of banking assets. The old system of state-owned enterprises (SOEs) amounts to another migraine. And as China seeks to restructure these creaky old socialist enterprises, 5 to 10 million workers are thrown into unemployment every year. Among China's challenges is persistent corruption from both the top down and the bottom up. Only recently, the head of the Bank of China was dismissed for embezzling substantial amounts of money. During the 1990s, the officer corps of the People's Liberation Army was able to move substantial capital through the system, some of it in corrupt ways. At the bottom, provincial tax collectors sometimes keep the collections for themselves rather than forwarding them to governmental coffers. Do China's environmental challenges also hinder its continued growth? Yes. In China, we are seeing the devastating impact of overdevelopment. From the air, China used to appear as a green blanket, but today several Chinese cities are obscured in winter months because of domestic soft coal use and industrial pollution. China's water table has been dropping at an alarming rate, and unless dramatic measures are taken, the result could be an environmental catastrophe of global proportions. One of the most controversial environmental projects now under way in China is the Three Gorges Dam, the world's largest engineering project. The dam is designed to harness water power to meet approximately 20 percent of China's energy needs, and it will divert water from the Yangtze River north to the Yellow River. Critics note that raising the water level will flood many rural areas and displace millions of peasants. Opponents also question whether it is wise to tackle China's enormous energy needs with construction of a single dam, which could easily become a terrorist target. In short, China needs huge infusions of new energy, but one wonders if this massive project is the best way to achieve that. Top | Next Page

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