Palmer, Brian. The view from China. Nova Iorque: Fortune, vol.140, art. 9, pg.211; 8 de novembro de 1999.
The view from China
Fortune; New York; Nov 8, 1999; Brian Palmer;
Abstract:
Dressed in a conservative Western business suit, China's President Jiang Zemin in late September delivered a speech to executives at the Fortune Global Forum in Shanghai. Who is the real Jiang Zemin - the one in Maoist dress reviewing PLA soldiers or the pragmatist who came to Shanghai? That question and what it means for China, was the implicit preoccupation of Fortune's 3-day conference, "China: The Next 50 Years." Foreign strategists, economists, and bankers - and most of the Chinese officials present - agreed that China has little choice but to continue economic reform.
[Headnote]
Big business confronts China's huge potential-and problems. By Brian Palmer
Dressed in a conservative Western business suit, China's President Jiang Zemin in late September delivered a speech to executives at the FORTUNE Global Forum in Shanghai. Amid blasts on Taiwan and human rights, he promised to "create a better environment for foreign enterprises." Four days later, Jiang gave another speech. This time the setting was different (atop Beijing's Tiananmen Gate), and the audience was different (the soldiers and masses assembled to celebrate the 50th anniversary of the People's Republic). And so was Jiang: The visual symbolism of China's President in a Mao suit was missed by no one.
So who is the real Jiang Zemin-the one in Maoist dress reviewing PLA soldiers or the pragmatist who came to Shanghai? That question, and what it means for China, was the implicit preoccupation of FORTUNE's three-day conference, "China: The Next 50 Years." It was attended by roughly 300 foreign executives and more than 200 Chinese government officials, managers, state bankers, and academics. These participants discussed a range of primarily economic issues: state-owned enterprise and bank reform, e-commerce, legal issues, branding, intellectual property, the environment, and nearly two dozen other topics.
General Electric CEO Jack Welch held forth to a packed auditorium on the secrets of management, including the need to systematically weed out the poorest performers; Coke chief Doug Ivester traded volleys in the cola wars with Pepsi's Roger Enrico; Henry Kissinger, Lee Kuan Yew, and Robert Rubin shared their views of the world; Presidents Bill Clinton and Jacques Chirac sent videotaped messages. Clinton spoke of China's great potential, and Chirac invited the participants to Paris in June 2000 for FORTUNE's next Global Forum.
But beneath the glitz, the message was more subdued. Foreign strategists, economists, and bankers-and most of the Chinese officials present-agreed that China has little choice but to continue economic reform. "The inevitability is, China is condemned to grow," said Ken Courtis, a Tokyo-based economist with Deutsche Bank. "You've got to create 18 to 20 million jobs a year, or you have people in the street." Such growth, many agreed, requires liberalizing the country's nascent capital markets; reorganizing the banking system so that credit can go to the private entrepreneurs who are actually creating wealth and jobs; shutting down money-losing state firms; boosting tax revenue; and speeding up legal reform. But all of these changes will carry considerable short-term costs. "It's going to be very, very tough," said former U.S. Trade Representative Carla Hills. "Yes, there will be investment and exports that generate economic activity, but there will be bankruptcies. There will be failures."
Almost every topic addressed at the conference reflected two basic problems. First, that the next round of reform will be much more difficult to implement: The easy things have already been done. Now more people will have to pay a price. "You don't care that there will be ten million jobs created [through reform]," Hills pointed out, "if yours is the job that has been lost." And second, that the state's priorities conflict. How is it possible, for example, to have banking reform, which everyone agrees is necessary, when the government continues to insist that state enterprises should remain the "pillars" of the national economy?
[Photograph]
Caption: A Potemkin Pudong
Shanghai is proud of its Space Age television tower (left) in the city's Pudong district. But the area is overbuilt, and rents have collapsed.
China cannot pretend that only Westerners were preoccupied with such issues. Singapore's Senior Minister Lee Kuan Yew, in classic form, scolded China's mandarins: "China must improve its legal and administrative system, with public servants separated from private business to avoid conflicts of interest." Lee allowed that while it is difficult for the current leaders, many of them Soviet trained, to change the way they think, the next generation will have to create a more open system. "Behind the politesse, the Chinese have the same visceral urges just as you have."
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Caption: Conference Stars
Top (from left): Dell of Dell Computer, Mockett of BT, Nasser of Ford, David Pottruck of Schwab. Left: Liu of New Hope and Time Warner's Turner.
As Lee's remarks implied, China's leadership is about to crash into the fundamental contradictions of "socialism with Chinese characteristics." For China to become the economic force it clearly wants to be, the government must loosen its grip on the economy. But a genuinely free-market system could destroy the party's power base.
A number of Chinese academics spoke candidly about the country's economic difficulties, but the managers of Chinese enterprises, state bankers, and government officials tended to be more circumspect. In fact, the higher-ranking the participants, the more likely they were to quote the party line. "China enjoys political and social stability," intoned Zeng Peiyan, head of the State Development Planning Commission and considered one of official China's brighter stars. "Taking Deng Xiaoping theory as the guiding principle, and with the firm leadership of the third-generation collective leadership with Jiang Zemin at its core, our party and government are completely able to regulate the macro-economy, to respond to various complicated situations, and to handle various new problems timely and resolutely." Executives not put to sleep by this stuff had to be alarmed by it.
Although sensitive issues like human rights and political reform weren't on the formal agenda, they did come up in several of the sessions. The need for transparency and the rule of law, in particular, was mentioned repeatedly. At the same time, many Western executives were sympathetic to the constant refrain of their official hosts-that China is a big, complicated country where change cannot happen in a day. "There are 1.3 billion people in China. The leadership's first priority is to feed, clothe, and shelter that many people," said Maurice Greenberg, CEO of the American International Group. "That's a full-time job. And to expect them to respond to our priorities is a little naive."
Only a handful of executives acknowledged publicly the serious downsides to doing business with China, even though an official survey found that only a third of foreign businesses are making money there. But privately, corporate chiefs swapped tales of corruption, theft of intellectual property, and arbitrary government actions. "See these?" one FORTUNE 500 CEO asked during a meal as he swept crumbs from the table. "The government wants all of them." There is a palpable fear that China has taken a great leap backward. The seeming eclipse of reformist Premier Zhu Rongji, creeping deflation, and escalating MarxistLeninist rhetoric worry executives. One tangible expression of these fears is the level of foreign investment, which is running 20% below last year's record $45 billion.
On more specific issues, the Chinese and foreign participants were able to find a surprising amount of common ground.
* On the Internet: Electronic commerce in China is a very small business indeed at the moment, but computer executives are agape at what it could be. Purrs Michael Dell, CEO of Dell Computers: "The Chinese market is so vast and growing so fast."
China has only about two million Internet users. Though that number is growing rapidly, with average urban household incomes of around $1,000, computers just don't fit into most families' budgets. Nicholas Negroponte of MIT's Media Lab suggested that computers would have to drop below $100 for large numbers of Chinese to afford them. Dell does not offer a $100 PC, but it can sell its computers relatively cheaply by peddling them directly to customers over the Internet or over the phone. Although the company has been operating on the mainland for only a year, its business is already profitable.
As the Chinese go online, companies will be able to serve them more efficiently, bypassing the costly distribution systems of the West. That's the view of Ford CEO Jacques Nasser, who wants to sell cars over the Internet in China. "There are 23,000 car dealers in the U.S.," Nasser noted, "and China's market will someday be as big as the U.S. Will you need 23,000 dealers in China? No." Nasser envisions a world in which customers can buy a car much the way they buy a Dell computer, by selecting a model, color, and options online, then having it custom-made.
British Telecom CEO Alfred Mockett envisions a marriage of the Internet and the mobile phone. China has 30 million mobile phone users now; it is not out of the question that it could have 600 million by 2020. Because the country has a limited fixed-line telecom infrastructure in place, Mockett believes that "China is going to leapfrog ahead of the rest of the world." His guess: Most of those cell phones will be able to download material from the Internet, and a third of all business and consumer transactions will be conducted over wireless systems.
* On the media: China, our panelists agreed, represents a potential gold mine for the world's media companies. The question is how to find the right seam. Time Warner Chairman and CEO Gerald Levin believes in the need to provide more local movies, television, music, books, and magazines. "When you go into a marketplace like China, you find the extraordinary talent of a filmmaker or a musician. The job of a company like ours is to give them a platform for their voice. That's an important public role. It's not about taking American culture and pushing it around the world. It's really about trying to take the ethnic diversity we have in the world and give it expression."
* On the environment: Just glance out the windows of the new convention center where the conference was held for a glimpse of one of China's biggest problems: pollution. On any given day, the Shanghai skyline is draped with a heavy layer of smog, much of it from burning coal. China depends on coal for 75% of its energy and uses it for everything from power generation to home cooking. Of the world's ten most polluted cities, nine are in China.
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Caption: Wiring China
Nicholas Negroponte of the MIT Media Lab believes that if the Chinese are to enter the Internet age, they will need simple and cheap computers.
How can China meet its growing need for energy without further degrading its air and water? Goran Lindahl, CEO of ABB, the giant Swiss engineering company that is the major supplier for the controversial Three Gorges hydro dam project, said, "Every country needs a balanced portfolio of energy that includes clean coal, natural gas, nuclear, hydro, and wind power." Ken Lay, CEO of Enron, the Houston-based energy company, argued that the country should invest in natural gas, which burns much more cleanly than coal. "China has far more natural gas than is apparent," said Lay, " because they simply haven't been seeking it out." Converting to gas won't be so easy. It might be expensive, for one thing, and shutting down China's coal industry would cost jobs.
China's energy system is grossly inefficient, and that's where Michael Bonsignore, CEO of Honeywell, the Minneapolis maker of industrial controls, sees opportunity. "Right now, if a Chinese apartment is too hot, people just open the window," Bonsignore noted. "Something as simple as a home thermostat could conserve tremendous amounts of energy."
Liang Congjie, founder of Friends of Nature, China's first independent environmental organization, put a planetary spin on the discussion. What will happen, he asks, if China's living standards improve to the level of the rich world? Shanghai is a city of 15 million but has only 18,000 private cars; someday most families will be able to afford one of their own. The implications for traffic and air quality are dire. Liang's immodest proposal: "We need to change our way of life-not just the Chinese but everyone else in the world."
* On entrepreneurship: Liu Yonghao of the New Hope Group, a Chinese conglomerate; Ted Turner, the founder of CNN and vice chairman of Time Warner; and Jerry Yang, the Taiwan-born American who is one of the minds behind Yahoo, have had very different life experiences. But they see the world very much the same way. All love the craft of business; all have had irritating problems with government; all are constantly on the watch for innovation. "The easiest way to make a fortune quickly," said Turner as Liu and Yang nodded emphatically, "is to do something no one has ever done before."
The three also bemoaned the difficulty of getting capital at crucial moments. "If I'd had a little money early on, there's no telling where I'd be today," said Turner to an audience notably short of sympathy for his plight. Liu's story was more dramatic. When China began to allow private commerce in the early 1980s, the Sichuan native was then working as a teacher for all of 38 yuan a month (less than $5 at today's exchange rates). He sold everything he owned, including his watch and bicycle, to raise $150 to buy a chicken incubator. His company went through terrible times. Unable to get a bank loan to expand, he and his brothers facetiously considered running away to remote Xinjiang province or throwing themselves into the Yangtze. But they were able to finance growth through personal loans and profits. New Hope is now one of China's largest private food processors; it also has interests in real estate. Jerry Yang conceded that when it comes to capital, he cannot match Liu's story because "money found us." Eventually, that is. Like Turner and Liu, he says, "I wish we had raised more money earlier... Knowing what I know now, we could have hit that fastforward button."