Positive Outlook

Economic leaders at forum upbeat about China’s future, despite IPR concerns

By LI LI

FUTURE LOOKS GOOD: Former U.S. President George H.W. Bush is happy to see a strong China

Over 600 financial leaders from across the world, whose companies or countries are keen to profit from China’s economic boom, expressed both optimism and concerns at a recent CEO forum in Beijing.

Presented by BusinessWeek magazine, the forum under the theme “Going Global: reinventing for today, creating for tomorrow,” featured an illustrious group of speakers, including the president of Timor-Leste, six former heads of governments, three ministers and over 30 CEOs of leading global companies.

During the keynote address, Sheng Huaren, Vice Chairman of the Standing Committee of the China National People’s Congress, showed just how optimistic China is when he quoted figures to illustrate the colossal predicted growth momentum.

“By 2020, China’s GDP should quadruple to $4 trillion as against $1 trillion in 2000 and the per capita GDP is expected to reach $3,000 in 2020, ” he said.

With this kind of high-speed growth, the Chinese Government is also making more efforts to distribute the wealth created more evenly to its population. Chinese Minister of Finance Jin Renqing announced at the forum that the Chinese Government would spend 100 billion yuan ($12.3 billion) on an agricultural tax exemption program every year from 2006. There was also good news for children from disadvantaged backgrounds, with the announcement by Jin of a treasury subsidized, nine-year compulsory education program nationwide from 2006, under which tuition, boarding fees and textbook fees will be paid by the government.

However, participants at the conference pointed out from a global perspective that it is good to balance China’s development with that of other developing countries. Barbara Dalibard, who heads France Télécom’s enterprise communication services unit and business-data arm, said that China’s development is putting a lot of pressure on other countries to be more efficient. “We need to manage the balance” of this development in order that this pressure does not jeopardize people who may be starving in other countries while China prospers, she said.

In a country where pirated DVDs of foreign movies, designer clothes and luxurious watches are readily available in the street, participants of the forum also questioned when China would become innovation-friendly in terms of protection of intellectual property rights (IPR).

China No Threat

GETTING DOWN TO BUSINESS: A dialogue-driven format is adopted to encourage interaction and collective discussion between guest speakers and audience

Mahathir bin Mohamad, the outspoken former Prime Minister of Malaysia, has long been a supporter of China’s economic prominence. As a keynote speaker at the forum, he elaborated on his stance from the perspective of structure of international politics. He said, “[Compared with the Cold War period], now we have only one hyper-power and we are having a lot more trouble with one bloc only. Maybe China would be able to become another bloc, not too strong but sufficient to create balance. Then the world would be a little safer.” He went on to explain the reason Malaysia would feel safer with a power like China by sharing an amusing anecdote. Malaysia has been trading with China for 1,800 years and it was never conquered by China, said Mahathir. Yet Malaysia started trading with the Portuguese in 1509 and by 1511, the Portuguese had conquered the country.

Jenny Shipley, former Prime Minister of New Zealand, which was the first country to globally support China’s accession to the WTO and accept China as a market economy, elaborated on the benefits of China’s growth in terms of the economic development stage the country has reached now.

“I view China’s economic development and opening up as very, very important. It is good for the people of China and actually very positive for the economy globally. While China’s advantage at the moment is it can produce goods at a very competitive price to sell to the world, very soon, as people’s incomes rise, China’s consumers are also going to offer an opportunity to global companies to sell goods and services to the people of China.”

Robert McGraw, CEO of a U.S.-based investment and consulting company Averdale International, echoed Shipley’s sentiments. He believes China is using the significant edge in terms of manufacturing costs intelligently to create wealth in China and to create a middle class. He thinks although right now China’s economy is export-driven, as that middle class grows, a lot of China’s GDP will be generated internally as people look at the local market to satisfy their needs. Then Chinese manufacturers will have a larger audience to sell their products to rather than just concentrating on export.

India’s business community regards the booming Chinese economy from a slightly different angle, considering the Asian neighbors are the two largest developing countries in the world and their competitive edges overlap in many aspects. Dr. Suriner Kapur, Chairman and Managing Director of India’s Sona Koyo Steering System, expressed that Indian companies were feeling pressured by Chinese competition. “In India, we always say if China can do this, then why can’t we?” he said. Kapur explained that many Indian companies want the quality of their goods to be as good as Japan and the cost to be as competitive as China. But he was quick to point out that the rivalry between the two countries has not evolved into fear of threat towards each other, as economic cooperation is encouraging the Indian business community.

Renminbi Issue

China’s stance of pressing ahead with currency reform on its own terms received the support of several speakers at the forum.

Mahathir bin Mohamad called on China to stick to the stability of its currency by drawing on Malaysia’s experience through the Asian financial crisis. He said hedge fund agencies are doing nothing more than making a lot of money by manipulating the values of currencies. The consequence is that people of that country will become poor overnight. Mahathir said that hedge funds would revalue the Renminbi and result in China suddenly becoming less competitive. Ultimately it is each country’s own decision to revalue its currency as they are better aware of the consequences, he said.

Bob Hawke, former Prime Minister of Australia, argued that the currency issue is and will remain a decision for China from three aspects. First, it is a mistake to push the appreciation of Renminbi based on China’s huge trade surplus, said Hawke. China’s growth and development of exports is in some sense the path of its economy. Second, that fact that neighboring Asian countries run a surplus in trade with China by exporting enormous amounts of raw material doesn’t encourage the revaluation of the Renminbi. Third, hollow arguments coming up in the United States that the country’s economic problems are caused by the enormous growth of China’s exports do not hold water.

“The problems in the United States are not made in Beijing. They are made in Washington,” Hawke said.

Weak Points to Overcome

Whenever discussions take place about China from a business angle, it is inevitable that the issue of IPR will surface. Participants were generally in accord that it was an area of vital importance to encouraging foreign investment.

Steve Davis, President and CEO of Corbis, a major global media services provider, is in an industry among the most vulnerable to IPR violation, yet his attitude toward the problem is not that pessimistic. He argued that the issue in China is more visible because the sheer number of violations, especially in the field of piracy, is larger purely because of the country’s size. He believes the Chinese Government is certainly taking more preventative actions as increasing attention has been attached to protection of IPR internationally.

When Jenny Shipley was asked to give suggestions on China’s future development, she emphasized abiding by international trading rules, including those on intellectual property rights protection. She said this is of particular importance considering China is about to have far more Chinese companies become global players. Shipley said respecting rules would facilitate China’s integration into the global market, which would benefit both Chinese companies and the economy as a whole.

Taking a similar question from the audience during a panel discussion, Mahathir bin Mohamad illustrated the importance of a legal framework for China, especially in attracting foreign investment. He said with a framework in place foreign investors would come in because they are assured that if they encounter any problems, they can redress them in the courts of law. He believed this is particularly vital to China considering the legal framework has not been in place for that long. “You are doing very well already. But you should do better,” said the former statesman.