Globalisation has been a boon for China. It has outstripped competitors through producing more products, more quickly and cheaply than any other nation. It’s become the workshop of the world.
However, it’s a relatively new phenomenon. Getting China to participate in the global economic system was no easy task. It was only at the third plenary session of the 11th Central Committee of the Communist Party of China, held in December 1978, when the party decided to shift its focus and set about a policy of reform and opening up to the outside world. In the three decades since China opened its doors to foreign business, trillions of US dollars of investment have flowed to the country. Not all of it has generated a decent return for investors. When China finally did open its doors to commerce observers likened it to a 19th Century gold rush as the brave and the foolhardy stampeded in to stake their claims in the world’s biggest untapped market. Many lost their shirts. The rules were different and few had bothered to check whether the promises of unparalleled riches would come to fruition.
Global services group Deloitte says over the next decade no other single market will have a larger impact on world social and economic development than China. It argues China represents a wide range of opportunities, including: • The world’s largest manufacturer of
goods. • The world’s largest consumer of steel
and cement. • The world’s largest user of shipping serv-
ices/containers. • The second biggest consumer market by
2015. • Up to 300m rural people will move to cities over the next 12 to 15 years.
PwC says the so-called “E7 emerging economies”— Brazil, Russia, India, China, Mexico, Indonesia and Turkey — will be around 50% larger than the current G7 economies (US, Japan, Germany, Britain, France, Italy and Canada) by 2050. To put that in context, the E7 is currently about 25% of the size of the G7 economies at market exchange rates.
Although markets began to open up in 1978 there were teething troubles aplenty. Local businesses – more often than not state-controlled and operated – were different to what Westerners had been used to. For example, details of contracts were never guaranteed private. Author John Chan writes, in China Streetsmart: What you must know to be effective and profitable in China, that transactions would be struck but details of contracts would be leaked to competitors to enable them to offer a better deal. Contracts would then be terminated without any recourse.
“In the Nineties China went from a closed backwater to the workshop of the world. Many smart young men saw this transformation coming and mistook it for their own destiny. Not a few rushed East to gain strategic footholds, plant their flags and prosper,” writes former private equity player Tim Clissold in his account Mr China. “After all, the Chinese had numbers on their side: a seemingly endless population, a thirst for resources and the tide of history. What they needed was Western knowledge and lots of capital. Or so it seemed…”
Clissold and his private equity partners may have been armed with hundreds of millions of dollars burning a hole in their pockets and a missionary-like zeal to spread capitalism to the East but instead it was they who received an education.
Culturally, things are also very different. “I was dealing with a society that had no rules; or, more accurately, plenty of rules but they were seldom enforced. China appeared to be run by masterful showmen: appearances mattered more than substance, rules were there to be distorted and success came through outfacing an opponent,” writes Clissold.
You have been warned.