Dear Fellow Icebreakers,
That seems a strange greeting in the middle of summer.
Sometimes people talk about Icebreaking as if it was relevant only in the 50’s. Then it was about getting China released from boycotts and embargoes, reinstated into the world of trade and commerce and then back into international forums from the early 70’s.
Today the task is greater in some ways. A returning and rising China is tearing up all the textbooks of international development experience. It is asking many questions of international structures and values, devised by the West, as it returns to world status. Excessively pre-occupied by its sense of “150 years of shame”, China remains, on a historical analysis, concerned about the West’s preparedness to accept new global powers – a concern reinforced by the Washington Foreign Affairs Policy Declaration of 1999.
At the same time, the West is experiencing major crises of a capitalism that probably allowed an unbridled financial sector to create a black hole in the centre of western economies. I could make huge profits if I could borrow at 0.3pc… We need a sophisticated financial sector but one led by those who see it supporting global growth.
This is exacerbated by an over-extended state sector – the West averages well into the 40pc range against China at 23pc. The people of Europe and the West are not prepared to accept huge cuts to their living standards, which were given to them by successive generations of over-promising politicians. China and other emerging countries are learning fast from these mistakes of development in the West. The West seems to find it hard to learn the lessons, and certainly to develop the policies to correct them.
So we have new countries emerging who are leaner and more able to compete. Is the West unable to compete with low cost economies or did it lose its entrepreneurial and innovative zeal to overcome such challenges, and instead invest in financial markets?
This sense of frustration at the uncompetitive contest is a danger if it cannot be channelled, through big ideas, into workable solutions.
This rising of China, Brazil, India, Russia and South Africa (BRICS) is welcomed by some and is a concern for others.
Germany leads the welcoming party, maybe drawing from its historical experience, and maybe seeing value from the trade and commerce that flows there from. Germany’s investment in relations with the BRICS countries has brought a significant increase in exports, which shows through in German growth figures.
The USA, UK and France (UFU) seem to be more cautious about accepting the rise of China and Russia, but are more open about some of the other BRICS nations.
In the end, in my personal opinion, this tension between accepting and encouraging the rise of the BRICS nations will characterise international relations over the next period.
While G2 and G20 might seem important, and ASEAN and SCO and other groupings have regional significance, it is the coherence of BRICS and its interface with the UFU that may be the most significant.
The BRICS nations accounted for over 50pc of global GDP for 18 of the last 20 centuries. This was mainly China and India.
Hitting a low of about 20pc they are now in the low 30’s and heading back to the 50’s plus.
Can that be resisted? Can they be split? Can we afford to resist change or do we need to learn from the German approach? Can we learn from the solution to Germany’s inevitable rise – it took two horrendous wars and many millions of dead, before key players turned their minds to solutions as opposed to resistance. The European Union offered a structured means to a peaceful and shared development.
For China, the world is about alliances with those who want to work with China, and encouraging those who would be less committed.
The USA can resist China’s invitation to an intimate relationship.
On the other side Brazil, India and South Africa are clearly targeted by UFU.
But does it have to stay like this?
Let’s hope as we see the limited thinking in dealing with our crises, that we see that the BRICS nations, and Africa, offer the West the road to growth. Then the threat will dissipate through the growth of economic interdependency – the fundamental glue of the European solution to global conflict.
We are at a historical juncture in the world, and we need to know our options more clearly.
Yes China has some characteristics that sensibly concern those in the West who have to make the big calls. Issues such as intellectual property, the openness of China’s markets, the future of world currencies and trade are all legitimate concerns of the West. But are they resolved through resistance or by encouraging China?
Or do we build compatible solutions through major innovative strategies?
Of course there are risks from opening up more to China.
They are very clever and effective in their planning, research and implementation.
But, at the core, China’s interests are not imperial. They are self sufficiency and development. That is the core of the reason for developing a Big Deal approach to China – to harness China’s growth to offer opportunities for the West on hugely bigger scales, than the current large scale.
Now is a time for big thinkers to open minds to new ways, and for the fears to be contained where fears should be stored.
Fear is the father of conflict. Opportunity is the engine of growth.
China’s human rights, like ours, will develop as they develop.
Democracy is an aspirant objective and we can all benefit from debating how to marry it with accountability and fairness, instead of claiming we know best.
Democracy is always changing as it responds to the changing world.
Positive approaches will enable us to grow together instead of working from fear, provided they are meaningful, measured and mutually beneficial.
The West will continue to rise and do not be surprised when your entry point to China is the 7 hour flight to Urumqi, rather than via Beijing
I think big corporates are rightly beginning to look beyond China as a market, to China as a global partner.
For SME’s the “China in Asia” approach is the medium term game I would suggest.
China’s investment into the UK could be much greater if we were more aligned. This is a phase, and we should be active in being considered a safe investment destination, rather than worrying China about issues which we can have no effect upon – e.g. China in Africa and human rights. They will go, and are going, elsewhere, where they do not think they will be at risk from a deepening of the criticisms.
The USA has a major decision to make with China. China could transfer some of its huge dollar reserves into investments into the USA creating jobs. Or it could develop alternative currencies and destinations, retaining dollar assets as a bargaining chip only.
Currency rates and human rights will not move Chinese decision makers in the medium term. The USA has enormous potential to work with China and thereby manage its global leadership. The USA could benefit enormously from moving to a positive approach to China. It is a risk, but growth comes from measured risk taking.
Containment of China is not a viable option. Vietnam and Korea show the risk at the extreme end. Managing China’s rise is still an option, based on real gains for all.
The right road may lie in a Big Deal that enables China to develop more safely, and the West more share of the development that arises. It is not easily created as fear, suspicion and defensive positions are very real. But the reward is real. Growth, peace and a developing of shared values.
Regards,
Stephen
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Dear Friend
The Chinese reacted in 2008, before the financial crisis began, to plan a fiscal stimulus programme to offset the recession which was hitting their exports. Domestic demand to offset export problems. The world hit a financial crisis and China’s apparent immediate stimulus reaction, was seen as incredible fast reaction to the financial crisis. It was not. It was a reaction to a drop in export orders experienced from 2007.
The Chinese needed eventually to offset a growth collapse from 10%c to less than 4%, by further deepening of the stimulus, to achieve a second half 2009 growth rate of over 12%, to get the annual average to the minimum of 8%. This 12% growth had to be reduced during 2010 back towards 8% , and the side effects curtailed, mainly in the field of over and poor quality lending, and a real estate bubble, but they managed to contain any equity market bubble.
The measures to rebalance the economy, develop the domestic and Asian demand focus, and reduce low margin, energy intensive and polluting exports, have been managed with great skill. China is on target to get their economy balanced by the end of this year.
China’s strength is the phenomenal capability of the Party, whose work is little understood outside China.
The fears of a renewed double dip recession, a protectionist surge, or instability are the major concerns of the Chinese leaders and planners. The problems from the stimulus are still there but were anticipated and have been largely addressed, although the impacts will taper over quite a long period.
At the same time as China has come to towards the end of a general phase of encouraging inward investment, so some international companies have started expressing their concern at the lack of fulfilment of their plans when they invested in China. Their lack of profitability and ability to easily gain market share is at the core of this. This is caused by the Chinese having developed real competition for them from locally developed companies. This competition has been felt. So those who will be successful in China are those who have something extra to offer – access to continuing R & D development that the Chinese cannot attain, access to world markets similarly limited to the Chinese. Simply relying on being a world leader will not suffice.
China will anticipate a reaction. Perhaps attempts to reduce China’s share of Western markets or China’s investment plans in the West. The collapse of the Doha Round gave China the opportunity to divest away from Western dependency to trade with Asia, Africa and Latin America. That is their main antidote to any Western reaction to trade with China. If some kind of tensions increases, we may find we pay more for goods in the shops, and Western participation in China may be diminished.
This is a time for cool heads in the West. There is plenty of ways to work with China, not confront their ambitions and still realise Western reasonable corporate objectives, but it will require some real hard work and some real big thinking. Companies like Standard Chartered Bank will lead on this type of innovative thinking. I am sure HSBC are hard at work as well to find ways to build through this period.
China has suffered a spate of worker unrest. A number of theories abound as to why and why. But it is clear the working people ofEastern China are not prepared to pay for cheap exports. They want reasonable conditions and pay. This form of development of human rights is what the 48 Group has always predicted. That, just as we developed and changed our society as we wanted to without outside pressures, and resulting from internal development and pressures, so China would and is.
We can expect more assertive trade unions and the emergence of a greater accountability by those in positions of authority. China is beginning now the move to a modern society but few in the West can see that China’s world will not be like ours, but, could, conceivably be based on learning from our successes and failures. That is to say, China’s forms of state ownership, welfare and accountability, may be something we can learn from. China’s state at 26% of GDP is smaller than anything in the West. We have something to learn.
China’s approach to funding of health is just an example of how to look at the same challenge in different ways. China’s state’s health cost is targeted to be 6-7% of GNP, compared to the UK at 95, and the USA at 18%, the rest of Europe in double digits.
Within a couple of years or so China will remove state ownership from 805 of Chinese hospitals. Yes this is China policy, not our own governments!
May I wish one of our Fellows, Mark Tucker, all the best in his new post as head of AIA in Hong Kong. He will lead that company away from being controlled by its troubled US parent, and into being a true Asian company. The recent problems of Prudential demonstrate that we have a contradiction between regulatory governance controls and good management being based in the Asian market. Let us hope we find a solution to that quickly or British companies, probably most Western companies, will find it hard to succeed long term in Asia.
This is a time of great opportunity for the innovative, who welcome periods of upheaval and change. For those who want to rely on old ways, it will be a tough time.
We have a new government who share many interests with China, particularly around the size and role of the state. It is potentially a good time for cooperation. If we think big we can have a real, deep and beneficial relationship with China. The US sent 16 cabinet ministers to China for the new high level exchange. They are thinking big, not necessarily correctly, but big. It is the time for out-of-the-box thinking with China.
Have a good holiday.
Stephen
(These are my personal views, not those of the 48 Group.)
Stephen Perry
Chairman
The 48 Group Club
Website: www.48groupclub.org
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Dear members
Shanghai TV have made a series of programmes commemorating the 60th anniversary of the PRC. They decided to include me in the 10 people they filmed. You can see the details below. The distinguished company I keep is a tribute to the 48 Group and its work from 58 years ago. I include in that Joseph Needham, Joan Robinson and Richard Kahn, the distinguished Cambridge professors, who set my father on course.
The opportunity to practice one’s belief is rare. I have been able to practice my belief that trade and investment provide an antidote to war and conflict, and that China’s emergence as a world power is right and inevitable.
I also believe that the global preoccupation with the rise of Asia as a continent acting collegiately, which we forecast over 10 years ago, seems tied to a belief that the world is en route to the rise of a new superpower – China. The preoccupation with G2, G4, G7, G8, G20 is a symptom of these dual anticipated events. But another group – the SCO, BRIC meetings, East Asian summit, ASEAN plus 1/2/3, the Tripartite initiative and the Chiang Mai initiatives – tell a deeper story if they can be really understood. The Chinese contribute to the former group of G’s, but their real belief lies in the latter group.
The real Chinese agenda is to grow strong but independent and not to be a superpower. They philosophically believe in a multi polar world. This is for reasons of principle but also for pragmatic reasons such as, superpowers always fall, superpowers get caught up in projection of values and control over others. Having experienced the core driving forces of China – over population by a factor of 300 percent and 150 years of foreign invasion – they have no wish to lose their way away from concern for their own nation.
Their participation in the global world requires them to participate in its global structures and problems. But they do not want to be involved more than they have to. Their involvement is not tied to a shared value system or to a shared economic system. China’s plans are still not comprehended internationally but Obama might get it better than most, drawing upon his unique upbringing among Western leaders.
The IMF and World Bank reforms seen by many in the West as a testing ground of real politick – that we can adjust to the rising Asia, is not seen that way by China. They will play their part there, but their real interest lies in creating new alternatives in Asia which address Asia’s needs and problems. China is an Asian nation.
I suspected this was the case when I wrote about China’s attitudes, as I perceived them, to the April G20 conference. Now I feel quite sure that China has its own agenda, that it is deeply researched and is long term. China’s accumulation of $3 trillion dollars was not as a result of trade surpluses. It was a target which trade surpluses were to achieve. Martin Wolf in the FT, Will Hutton, and many others do not comprehend the Chinese thinking. I am not claiming to, but I am claiming that that is a prerequisite to understanding where China is going. The target was a balancing power with the USA. It is about managing the contradiction. Read Mao o Contradiction and it is all there. Most commentators seem to think China’s policies are made like Western ones – as reactions to events. As reactions to election needs. The Chinese one party system allows them to engage in long and short term planning. Their party is well tested at being very realistic about testing and developing policies.
No, I don’t think the Chinese are classical Marxists, but I do think that Marx, and those who followed him, are a significant philosophical guide to China’s path. So without studying what they do study, even though they do down play it, will leave the China forecaster short of the core driving force.
The UK, apart from Standard Chartered and Prudential, is largely poor in Asia. When our students are educated in large numbers in Asia, then we shall begin to see a change in our thinking. We cannot understand China or Asia through poor textbooks and very poor media coverage.
One of the men who will shape the world over the next 50 years is visiting the UK very soon. His name is hardly known and rarely is he quoted. When Hu Jintao left G8 to rush home recently, it was the unknown man who took over the Chinese delegation. Obama realised immediately who he was, but he was one of very few.
Knowing Dai Bingguo is a small measure of the Western lack of understanding of China.
The 48 Group Club will continue to make it voice heard and try to help the West understand China. I have a great committee and a wonderful membership who collectively make us what we are. Maybe others wish to join us and help us understand China. I think China’s leaders understand that our goal is similar to theirs from this process. Through understanding China we can help China fulfil its potential and be a force for peace and prosperity for its people and the world.
Regards
Stephen
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Foreign ‘China visionaries’ speak
SINCE the founding of the People’s Republic of China, many visionary international figures have contributed to China’s success, breaking down barriers and forming genuine friendships with the Chinese people.
Ten of these “China Visionaries” will be featured in 10 hour-long weekly interviews on International Channel Shanghai (ICS) beginning on Sunday at 8pm.
The program will feature former US Secretary of State Henry Kissinger, former International Olympic Committee President Juan Samaranch, former Japanese Prime Minister Yasuhiro Nakasone and American author and investment banker Robert Kuhn.
Other interviewees include Russia’s former ambassador to China Igor Rogachev, former French Prime Minister Jean-Pierre Raffarin, former Australian Prime Minister Bob Hawke, famous German sinologist Wolfgang Kubin, Chinese contemporary art collector Uli Sigg and the 48 Group Club Chairman Stephen Perry, who has been at the forefront of trade with China for more than 30 years.
The 10-episode series explores these figures’ roles in historical developments over 60 years, revealing extraordinary personal accounts and shedding light on their deep connections with China.
The series also interviews key Chinese insiders as it looks back on China’s development with a fresh approach. It takes a retrospective and documental angle, focusing on personal stories behind historic events.
Kuhn is the author of the best-seller, “The Man Who Changed China: The Life and Legacy of Jiang Zemin.” His new work is “How China’s Leaders Think.” Kuhn says all 10 figures share a passion for China and a willingness to take a risk for China.
“All of us used to be criticized by the Western media and even authorities for working with China,” Kuhn says. “However, I like such criticism. I wasn’t a China scholar or expert; I was trained as a brain scientist and worked as a banker. But I want to tell the truth of China. Everything I write about China, I really believe.”
“It is both a gift for New China’s 60th anniversary and an important historical resource to study modern-day culture and economy,” says ICS director Sun Wei.
Meanwhile, the ongoing TV talent show “My Show” has entered its final rounds and will be aired in around three weeks.
The contest also has a special competition round that encourages the TV audience and music lovers to compete with the finalists. The winner will star in a musical and become a host for Channel Young.
“China Visionaries”
Sunday, 8pm, ICS
“My Show”
Sunday, 7pm, Channel Young
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Stephen Perry
Chairman
The 48 Group Club
