1. Silk Road 2003 Understanding China in a Globalising World Joseph T. Hsu, CEO The Symbio Group www.symbio-group.com The 8th Annual LRC Conference

2. “SILK ROAD 2003, UNDERSTANDING CHINA IN A GLOBALISING WORLD” 1.CHINA DE-MYSTIFIED 2.OPPORTUNITIES 3.FORTUNE FAVORS THE BOLD

3. CHINA DE-MYSTIFIED “There is this idea that China is incomprehensible. This is something the Chinese encourage. Chinese people like to think of themselves as being completely different to everywhere else.” -Adam Williams, Chief Representative, Jardine Matheson ; novelist, Sunday Morning Post. H.K. 10/26/2003

4. 1.CHINA DE-MYSTIFIED Social MythsSocial Myths Political MythsPolitical Myths Economic MythsEconomic Myths

5. Social Myth #1 “ A phoenix rising ” : China is a new emerging superpower

6. Social Myth #1: “A phoenix rising”: China is a new emerging “superpower” The Real Story:  Historically a “superpower” nation  Long civilization Robust recorded history Most families can trace roots back 800 years  The Great Divergence: Western Europe and China “China is a much richer country than any part of Europe,” -Adam Smith, “The Wealth of Nations”, 1776

7. China has historically been a “superpower” nation in the world 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 1001000150016001700182019782000 China Europe/US Others - Deutsche Bank Based on US $ of 1990 China’s GDP as % of the world, dominant in 90% of the last 2000 years The entire world economic order was – literally – Sinocentric until the 18 th century. Christopher Columbus and after him many Europeans up until Adam Smith knew that. China’s balance of trade and payments surplus continued into the early 19 th century. -Andre Gunder Frank, Global Economy in the Asian Age,University of California Press, 1998 Year, AD

8. China has a long civilization Did you know…  The Xia Dynasty began in the 2200 BC and has an extensive and well-documented history  The Qing Emperor united 7 existing countries, written languages, currency, roads in 221 BC  China printed books several hundred years before the Gutenberg Bible  Chinese landscape paintings emerged as a form of art several hundred years ahead of Europe “ China is essentially a country of history and culture” “Chinese civilization… has remained recognizably the same in essentials and is thus the oldest continuous, major culture in the world today.” - W. Scott Morton “China, Its History and Culture”,1995

9. China has a robust recorded history “Details of life in the second millennium B.C., conversations of the sixth century B.C., and letters of the first century A.D. and the like have been preserved, and thousands and thousands of local gazetteers about local conditions have been published by prefectures and counties for centuries.” - Wing-tsit Chan, Professor of Chinese Philosophy and Culture Emeritus, Dartmouth College,1995 Written language “Oracle” used 20 th ~15 th century B.C.

10. But in the 16 th century, China and the West took two very different courses  Industrial Revolution  Religious reform  Renaissance  Emergence of the US  Starting in 1434, Ming empire halted the great maritime expansion  Ching Emperor made “craftsman” and “merchant” the lowest professions for Chinese citizens  Ching Emperor told King George III that China had “no use for your country’s manufactures” While the West experienced… …China went the other way and shut its door to the outside world “The ancient Chinese ship sailed off the course of the world’s mainstream of wealth” - Hu Yung, Chinese Academy of Social Sciences, 2003

11. Social Myth #2 “ Everyone looks alike ” : China has a homogeneous culture

12. Social Myth #2: “Everyone looks alike”: China’s culture is homogeneous The Real Story:  Multiple ethnicities, religions and philosophies The Chinese Union Country that shares the most borders Middle Kingdom as a melting pot As early as three thousand years ago, Hebraic and Iranian religions ideas are practices traveled eastwards on the Silk Road, to be followed centuries later by the great missionary tradition of Buddhism, Christianity, Manichaeism, and Islam. And no religion emerged unchanged at the end of the journey. -Richard C. Foltz, “Religions of the Silk Road”, 1999

13. China officially has 56 nationalities

14. China shares its borders with the most countries

15. 1.CHINA DE-MYSTIFIED Social MythsSocial Myths Political MythsPolitical Myths Economic MythsEconomic Myths

16. Political Myth #1 “ The East is Red ” : China is a rigid communist state

17. Political Myth #1: “The East is Red”: China is a rigid communist state The Real Story:  “Socialist Market Economy with Chinese characteristics”: China has a special system Communism is a localized Western import China has deep roots in Confucianism  Reforms: “Black or white, a cat that can catch mouse is a good cat” – Deng Xiaoping Economic, political and social reforms are taking hold

18. “China today is affected in a special way by the West because its Communist ideology is rooted in the French Revolution, in the labors of Karl Marx writing in the British Museum in London, and in the blood of Russian Revolution. “Communism is, to begin with, a Western product.” - W. Scott Morton “China, Its History and Culture”,1995 China is not a traditional “communist” country

19.  Part of the national consciousness of the Chinese  The chief virtues are: Courtesy Tolerance Good faith Diligence Moderation Kindness Bravery Filial piety China’s system is heavily influenced by Confucian values

20. “Because of communism and Confucian beliefs in education, China has a better educated population than anyone else in the developing world. China’s advantages are many. Communism and a Confucian culture have reinforced each other’s interest in education. China is both better educated and more broadly educated.” -Lester Thurow, “Fortune favors the bold, what we must do to build a new and lasting global prosperity”, HarperBusiness 2003 China’s system is a unique blend of Eastern and Western values

21.  Changing economic mix  Less reliance on state- owned enterprises  Greater emphasis on private enterprises China economy is moving from being centrally planned, to market-driven

22. Accelerated job Creation Sustainable & Stable Growth Property Rights Revolution Level Playing Field Stronger Exports Stronger domestic Consumption Private Sector Productivity Revolution Expanding middle Class Accelerated technology Transfer China’s New Revolutions -“China’s Economic Outlook, 2003 and Beyond”,MasterCard International, 7/2003 China’s economic reforms are happening on many fronts

23.  Transformation of government functions to separate enterprise operations  Government by laws Enhance legislative functions Enforce law with power Independent supervision of law enforcement  China is gradually introducing limited democratic reforms Party officials have been encouraged to debate and even critique the work of top leaders Multi-candidate elections, though, are held only in villages China is reforming politically, including experimenting with democratic principles

24.  Real GDP has grown an average 9.4 percent a year since 1979.  China’s growth performance stands out against the enormous structural transformations and external challenges.  Using the official poverty line, the number of poor people is estimated to have fallen from about 200 million 1981 to 34 million in 1999.  Using the World Bank’s $1/day consumption measure, the number of poor declined from 360 million in 1990 to 223 million in 1999 (and 161 million in 2002) Growth Poverty -“ Promoting Growth with Equity, Country Economic Memorandum for China”, World Bank, 9/2003 The effects of social reforms are beginning to manifest themselves

25. Political Myth #2 “ The Dragon is ready to strike ” : China is a threat to the world

26. Political Myth #2: “The Dragon is ready to strike”: China is a threat to the world The Real Story:  Protection of sovereignty  The “sweet and sour” effects of China Unfortunately, China is more feared than emulated because it has the size to be everyone’s major competitor in the third world. -Lester Thurow, “Fortune favors the bold, what we must do to build a new and lasting global prosperity”, HarperBusiness 2003

27. Protection of Sovereignty

28. In general, commodity exporters and exporters of sophisticated goods and services gain, while other labor–abundant countries lose. -Martin Wolf, “The world must learn to live with a wide-awake China”, Financial Times, 11/12/2003 China’s “sweet and sour” effects on the world

29. Social MythsSocial Myths Political MythsPolitical Myths Economic MythsEconomic Myths 1.CHINA DE-MYSTIFIED

30. Economic Myth #1 China ’ s economic growth is a modern miracle

31. Economic Myth #1: China’s economy is a modern miracle The Real Story:  Following same pattern as other Asian countries  Difference from other Asian economies such as Japan and the NIC’s  Although a large economy, not going to be a “rich” country  What keeps China awake at night?

32. All of the successful economies of East Asia in the last half century have followed the Japanese pattern. Starting with large labor forces, they organized themselves to produce very high savings rates so they could afford massive investments in new capital equipment. China, with its internal savings rate of 30 percent, is only the most recent example of a country on this path. -Lester Thurow, “Fortune favors the bold, what we must do to build a new and lasting global prosperity”, HarperBusiness 2003 China is following the same growth pattern as other Asian countries

33.  China has largely avoided mercantilism of Japan and other Asian countries, resulting in a more open economy Foreign manufacturers of autos, telecom equipment, and computers dominate the Chinese market In 2002, the stock of FDI in Japan was only $60bn, compared with $448bn in China  While China has a large trade surplus with the US, overall trade is not far from being balanced. 12 months to April 2003, overall surplus was $36bn According to IMF, its current account surplus this year will be only some $19bn. At the same time, China is very different from other Asian economies, like Japan

34.  Even if China’s GDP increased 600% in the last 23 years, China’s 2002 GDP is only 1/4 of Japan’s, which has gone through 10 “lost” years.  In 2000, GDP per capita was $848, compared with US’ $29,240, Japan’s $32,350. China $44.45Russia 5.87 U.S. 35.16Britain 3.78 India 27.80 Germany 3.60 Japan 6.67France 3.15 Brazil 6.07Italy 2.06 Global Repositioning Estimate of world’s largest economies in 2050 Trillions of Dollars -Goldman Sachs & Co. BusinessWeek 10/27/2003 Even if China becomes a large economy, it won’t be a “rich” country

35. 1980-901990-00 Eastern Region Shanghai (H)30,8057.412.2 Guangxi (L)4,2647.2 11.6 Central Region Heilongjiang (H)7,6606.98.4 Jiangxi (L)4,6731.28.811.7 Western Region Xinjiang (H)6,65311.19.7 Guizhou (L)2,4632.79.58.7 H/L Ratio 1999 Per Capita GDP Growth Rate GDP (RMB) Income Disparity : Not Yet Critical, But ……... -“China’s Economic Outlook, 2003 and Beyond”,MasterCard International, 7/2003 The income disparity is not yet critical, but has not improved

36. -“China’s Economic Outlook, 2003 and Beyond”,MasterCard International, 7/2003  6 provinces in the coastal zone account for 80% of exports 89% of export incomes ¼ of total population (about 338 million) Per capita export of US$762  Infrastructure development in the interior Accelerate urbanization Average labor cost in the mid & upper Yangtze River Valley is 30-50% lower than the coastal region There are vast differences between regions in China

37. Economic Myth #2 China is a third-world country

38. Economic Myth #2: China is a third-world country The Real Story:  Fastest advancing infrastructure  “Great leap forward”: Generational leaps in technology  Phenomenal eBusiness and wireless growth

39. China’s has many transformative infrastructure projects –China is developing into an energy powerhouse –Transportation lines are expanding at dizzying rate NOTEABLE QUOTABLE: “China is definitely becoming a good model in developing its infrastructure” - Heinrich von Pierer, CEO (Siemens) - Economist, CCW Research, 3J Research, Symbio NOTEWORTHY FACT: Shanghai is the first city in the world to have a Maglev train China’s financial capital Shanghai was the first city in the world to build a magnetic levitation train – the most advanced train in existence. China has the fastest advancing infrastructure

40. Unit:1000 Users -IT Time Weekly, Beijing China 10/20/2003 China’s use of technology is growing at a phenomenal rate

41. Economic Myth #3 “ China is responsible for Western job losses ” : Like other Asian economies, China is a net exporter

42. Economic Myth #3: “China is responsible for Western job losses”: Like other Asian economies, China is a net exporter The Real Story:  China imports a great deal  China actively involves foreign participation  China is losing even more manufacturing jobs than the US

43. China imports more than Japan, even though its economy is one-third of the size. U.S. shipments rose by over 20% in the first seven months of this year. -BusinessWeek 10/23/2003 This year China has gobbled up foreign goods at breakneck speed. This has made China the largest contributor to export recovery in Asia, supporting global growth. -Financial Times 11/11/2003 China imports a great deal

44. Abundant inflows of capital are a catalyst for management know-how and technology innovations Foreign Direct Investment (FDI) has totaled over $50 billion every year for the previous 3 years –$52.7 billion in 2002; pledged FDI of $82.7 billion for 2003 Over 100 R&D centers in China owned by large tech multinationals –Over $100 Billion invested to date in R&D centers –Expected to double by 2005 “In China, there are so many talented workers and engineers, and we need to be part of China to better understand the local market” - Guy Sene, Vice President Agilent Technologies - Wall Street Journal, Dow Jones Newswires, World Bank China actively involves foreign participation

45. It's a global trend that manufacturing jobs are decreasing, even in China. Special attention to be paid to the fact that although the US lost 11% of the jobs, but this percentage is still smaller than the 20% in Brazil, 16% in Japan and 15% in China. - Wall Street Journal, 10/20/2003 China is losing manufacturing jobs as well

46. “SILK ROAD 2003, UNDERSTANDING CHINA IN A GLOBALISING WORLD” 1.CHINA DE-MYSTIFIED 2.OPPORTUNITIES 3.FORTUNE FAVORS THE BOLD

47.  More Chinese goods in India, Indians working in Tokyo or Kuala Lumpur – flows of people and ideas  Intra-regional trade – in services as well as in manufactured goods – is growing rapidly.  In contrast to the European Union or North America, companies and investors, rather than governments, are the driving force Opportunity #1: East Asia is becoming one common market: (ASEAN + 3 Agreement)

48.  Workshop of the World  Increasingly an R&D center FACT: Chinese cars that cost as little as $6,000 will arrive in the United States before long. Opportunity #2: China as a production base

49. “The basic direction of China’s economic development in the first 20 years of the 21 st century is for industrialization, urbanization and marketization. -Wang Mengkui, Director of the State Council Development Research Centre, 2003  Durable goods and raw materials  IT products  Fastest rising per capita incomes  WTO pressures for Chinese companies Opportunity #3: China as a market for localized products and services

50. - UBS Investment Research, Asian Economic Perspectives, 9/29/2003 Durable goods and raw materials comprise the largest sector of the market

51. –China’s purchases of IT hardware, software and services reached nearly $14 billion in 2001 –China already leads PC sales growth and volume in Asia, and will become the second largest market in the world by 2006 –China will become Intel’s largest customer this year NOTEWORHTY FACT: Most major industries and sectors in China will accelerate IT spending this year - People’s Daily, CCID Research, Ministry of Information Industry, CCW Research The sector for IT products is becoming one of the largest in the world

52. There is an expanding middle class (defined as households earning more than RMB 35,500 or US$4,300 a year). About 90 million people, equaled to the combined population of France and Canada, and this Chinese populace is expected to grow at around 40% a year. -McKinsey & Company,2002 China’s consumer market is surging

53.  e.g. Honda expects China to surpass Europe as its 3 rd largest market after US and Japan by 2005 190 280 260 300 May 2002 March 2003 May 2003 July 2003 January 1997 indexed as 100 -“China’s Economic Outlook, 2003 and Beyond”,MasterCard International, 7/2003 Domestic consumption growth is building momentum

54. Based on WTO, China will open finance, insurance, brokerage, telecom, distribution, travel, accounting, law, hospital, education, transportation, logistics. -Communique by the 3 rd plenary session of the 16 th Central Committee of the Communist party of China, 10/14/2003 Banks, brokerage and insurance will be the greatest opportunity for the foreign players. -Jonathan Woetzel, “Capitalist China”,2003 China’s service industry is experiencing explosive growth

55. "China offers the most exciting opportunity in the securities industry in this decade" -Michael O'Conor, chairman of FIX Protocol Limited (FPL) and managing director at Merrill Lynch FIX expects to be adopted in the China market in the near future. The stock exchanges in Shanghai and Shenzhen have been upgrading their trading and settlement platforms. WTO pressures for Chinese Companies are driving companies to seek best-of-breed solutions

56. “SILK ROAD 2003, UNDERSTANDING CHINA IN A GLOBALISING WORLD” 1.CHINA DE-MYSTIFIED 2.OPPORTUNITIES 3.FORTUNE FAVORS THE BOLD

57. FORTUNE FAVORS THE BOLD  How can Ireland maintain its tech leadership?  How can Ireland move from being Euro-centric to globally integrated?  How can Ireland “GLOCALIZE”? The People's Republic of China, had stated a goal in 2001 to produce more world-class engineers. Do we have the national will to take productive action? When the problem becomes obvious, it will be too late. -Andy Grove, Forbes.com, 2003

58. FORTUNE FAVORS THE BOLD Our Recommendations:  Partner with Chinese companies  Sell services to Chinese multinationals  Lack of name brand recognition and loyalty in China posts big opportunity for Western SME’s  Integrate China into your entire business life- cycle  Send your best army…

59. Let China sleep, for when she wakes, she will shake the world -Napoleon Bonaparte Send your best army

60. Something to Think About: In 1799, China was 44% of the world’s GDP In 1900, China was 7% of the world’s GDP Today, China is only 3.5% of the world’s GDP For further information: Email: joseph@symbio-group.com Closing Remarks