work­shop oftheworld

Finweek English Edition - - Cover -

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.

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