secret lessons behind China 's surge amid global financial meltdown : Cleveland IMC (((i)))

How Globalization, Borderless Business and Entrepreneurship are reshaping China and the world (book excerpts)

by George Zhibin Gu, 248 pages

China’s New Lessons (book excerpts)

China is moving, finally! The most significant change is that the nation’s new development has taken place in an open, globalized world. By now, China has become a new global theater. As if overnight, this ancient land has taken on numerous new roles—as the biggest frontier market and a manufacturing hub, as well as a top trading nation and a top destination for foreign capital.

What is behind all the changes? To me, three new lessons are highly relevant.

First Lesson

China’s first new lesson is that a truly meaningful development must depend on individual private initiative and entrepreneurial work, not government officialdom at all. China’s new growth comes directly from a new entrepreneurial force, which makes a stunning contrast to the frozen life of the Mao era.

In the old days, the bureaucratic power had completely penetrated into all aspects of life. It totally controlled all businesses and all organizations. Furthermore, it arranged all people’s lives according to its own needs. Even marriage or travel required official approvals. China’s society and people suffocated in all sorts of ways (see Ch. 13 and 14).

This bureaucratic crusade destroyed human flourishing for decades. What is behind this bureaucratic wilderness? By its nature, China’s self-appointed bureaucracy stands against the society and people. Squeezing has been its very purpose of existence.

For a long time, the bureaucratic aim was to get all the fish in the pond. To get the job done, it chose to pump out the water. Naturally, the dry pond failed to provide more fish. This greed led to vast destructions of all good things in life.

But one thing could not be destroyed—the entrepreneurial spirit. After 1978 a new environment emerged. The creative spirit immediately blossomed, which has led to vast changes in the nation and beyond.

By now there are some 40 million Chinese entrepreneurs. This private sector employs about 25% of the urban workforce and contributes about one third of the nation’s economic output. Its further growth is all needed in order for China to escape the traps that kept the nation and people in the mud for long.

Second Lesson

The second lesson is that rational development must take place in an open society, the more open the better. Openness is the biggest enemy of bureaucratic power, but it does people and society all good. Above all, an open society frees people from all sorts of man-made barriers. Under openness, people can change their lives through their own efforts. In this era, upward mobility has gradually become possible. All this leads to a meaningful and productive society.

In the Mao era, China lived in a tightly closed society in which wild bureaucratic power squeezed hard on people. People had no rights to travel or to select a profession or place of residence, not to mention political rights. In this closed society, serving the bureaucracy was the only way of life. Poverty was the only consequence. In fact, tens of millions of people starved to death, not to mention about vast killings, which was a daily event in the Mao era.

In this era, an ever-increasing openness has changed countless things. Popular desires for prosperity have quickly proliferated. In an increasingly open environment, people’s power is on the rise. Today, the Chinese people are much more productive, happier, and more confident than in the Mao era. Interestingly, in this new environment, a large burdensome population is turning into a creative and productive force. Though this development is still at a very early stage, it is bound to grow.

Development through openness is nothing new in world history. Old Europe was stuck in the mud for thousands of years under a rigid, closed society dominated by church-state. Upward mobility was impossible: Serfs remained serfs and aristocrats remained aristocrats. All this changed as openness was gradually embraced. Through this openness, and the resultant free flow of people, capital, and goods, Europe was able to decisively move away from the Dark Ages. After all the struggles, old Europe transformed itself into a progressive place.

Japan offers another kind of example. In the past half century or so, Japan has had huge outward economic expansion around the globe, but has kept its society and economy closed. The latter has backfired in the past two decades or so. As a result, Japan has lost much of its competitive edge. Today Japan is struggling toward more openness, which is badly needed in order for it to land on the growth path again.

Third Lesson

The third lesson is that a rational, sustainable development must involve the entire world. Evidently, nations with greater international participation see faster and healthier development, as is shown by China and India today. Without outside involvement, the water in the pond is dead and little happens. What is more, no sustainable development can take place without global involvement.

The United States is the biggest example of progress through global participation. Fundamentally, world involvement is behind the U.S. strength. For well over a century, the United States has outperformed the rest. This outstanding performance has relied on the entire world, which has supplied much of the requisite capital, labor, talent, natural resources, and technology.

Moreover, the United States remains the biggest destination for foreign direct investment now. In particular, foreign nations now hold many trillions of assets and debts in the United States. Increasingly the late-developing nations bring fresh capital into the U.S. market.

For example, China alone has some $300 billion invested in the U.S. debt and general market. This foreign capital is partly behind the prosperous lifestyle in the United States. Being an open society for the US attracts huge outside investments. If less foreign capital went into the United States, there would be vast negative effects.

Furthermore, the prosperity of the United States has relied on global markets. Today, the United States has the biggest crowd of multinationals, which have had the biggest influence around the world as a group. As a result, the U.S. economy has long led all others.

Today, China is just beginning to follow this path. An ever-increasingly open land is attracting more and more global talent, professional skills, capital, and goods. This foreign involvement is a necessity for China’s development.

By early 2006, more than $640 billion in foreign direct capital had arrived in the nation. More than 560,000 overseas companies are established, which has helped to make China a top trading nation as well as a leading manufacturing center. In the Mao era, China’s trade was next to nothing, but as of 2005 it had reached $1.42 trillion. What a difference!

Moreover, over 24 million Chinese work for overseas employers today. This massive foreign presence has impacted Chinese life in all sorts of ways. By now, the old state sector has been reduced to one-third of market share, while the domestic private sector and the overseas sector each take about another third. The foreign share is growing the fastest today and will very likely reach 50% of China’s economy within a decade.

Furthermore, development feeds on development. A fast-developing China is attracting more international involvement. In turn, this helps to make China more open and dynamic. One can say that the new China is being transformed into a Global China. In short, the Chinese market, society, and life are already part of global life in spirit and practice.

In many ways, today’s China is already more open than Japan. This greater openness will carry China forward positively. Though the reform started in business and economic areas, it now extends to political, institutional, and social areas as well. With this openness, the Chinese people are able to quickly walk out the deadly bureaucratic traps. Moreover, the nation is becoming a full and equal member in the global community, for the first time in history.

Reviews

Professor William Ratliff, Hoover Fellow at Stanford University
"Unique Guide. No one I know of has come so close to capturing
(new China's) spirit and meaning ... as Gu." .

Professor Ping Chen, Peking University and University of Texas at Austin
"Not many people have time and energy to investigate basic issues
confronting China and world. Dr. Gu is one exception." -

Winston Ma, Investment Banker and Author, Investing in China
"Essential reading for readers of whatever interests."

Contemporary History Association
"Highly insightful study on Chinese multinationals on the global
stage, as well as implications to global development." --This text refers to the Hardcover edition.

Gurus Online
"Rigorous examination on current China and global affairs by an
INSIDER."

Book Description
China is the world's number-one growth story now. But how is
it that China has achieved such quick growth in this era? How is it that
made-in-China products can flood the globe? Is a trade war going to happen?
Or is a new world order in the making? This second volume of a trilogy-by
Chinese journalist/consultant George Zhibin Gu-aims to answer these
questions and more.

Today, more than a half-million overseas companies conduct business
inside China. Learn about all the opportunities this exploding market
presents, including banking, insurance, and stock market, as well as the
yuan and trade and cross-border business issues. Moreover, it contains
extensive studies on China's political-economic reform as well as evolving
international relations.

This volume addresses eight key topics:

Contents of "China and the New World Order"

This book consists of 26 chapters, which are organized into eight parts:
I. China’s New Role in the World Development

Ch 1. China's social changes vs tourism
Ch 2. Whose 21st century?
Ch 3. Go east, young man!
Ch 4. Everyone in the same boat
ch 5. Power and limits of later developers

II. The Yuan, Trade, and Investment

ch 6. China's competitiveness vs rising yuan.
ch 7. Where to invest your money?
ch 8. Behind a rising yuan
ch 9. Beyond textile trade wars

III. China’s Fast-Changing Society, Politics, and Economy (in light of Chinese and global history)

ch 10. Lessons from Shenzhen, China's new powerhouse.
ch 11. Hunan province: from red state to supergirl and superrice.
ch 12. A revolution of Chinese professions
ch 13. What is the Chinese bureaucratic tradition?
ch 14. Why does Beijing want to reform?

IV. China’s Banking, Insurance, and Stock Market Reforms

ch 15. The explosive insurance market
ch 16. Chinese banks on the move, finally.
ch 17. lessons from China's stock market.

V. Chinese Multinationals vs. Global Giants

ch 18. The coming of age of Chinese multinationals.
ch 19. Behind Chinese multinationals' global efforts.
ch 20. China's technology development.

VI. The Taiwan Issue : Current Affairs and Trends (federation as an alternate way for unity)

ch 21. Federation: the best choice for Taiwan and mainland China.
ch 22. Taiwanese businesses in the mainland.
a vibrant Taiwanese force.
Hightech.
Other sectors.
What is the next?
Will Spring follow winter?

VII. India vs. China : Moving Ahead at the Same Time

ch. 23. China and India: can they do better together?
ch 24. Uneven development: India vs China.

VIII. The Japan-China Issue : Evolving Relations in Light of History

ch 25. Japanese business in China.
ch 26. Japan's past aggressions vs current affairs.

About the Author

George Zhibin Gu, a journalist/consultant based in Guangdong, China. A native of Xian, he was educated at Nanjing University, Vanderbilt University, and the University of Michigan. He holds two MS and a PhD from the University of Michigan.

For the past two decades, he has been an investment banker and business consultant. His work focuses on helping international businesses to invest in China and helping Chinese companies to expand overseas. He has worked for Prudential Securities, Lazard, and State Street Bank, among others. He generally covers mergers and acquisitions, venture capital, business expansion, and restructuring.

Also, he is a journalist on China and its relations with the world. His articles or columns have appeared in Asia Times, Beijing Review, The Seoul Times, Financial Sense, Gurus Online, Money Week, Online Opinion, Asia Venture Capital Journal, and Sinomania, among others. He is also a member of the World Association for International Studies hosted by Stanford University.

He is the author of four books :

1.China and the New World Order : How Entrepreneurship, Globalization and Borderless Economy Reshape China and World, foreword by William Ratliff (Fultus, 2006) ;

2.China’s Global Reach : Markets, Multinationals, and Globalization, afterword by Andre Gunder Frank (revised edition, Fultus, 2006) ;

3. China Beyond Deng : Reforms in the PRC (McFarland, 1991) ; and

4. Made in China ( English edition forthcoming, Fall 08 ; Portuguese edition, Centro Atlantico, 2005)

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