How China is Redefining Globalization
June 19th 2008
The LEVIN Institute hosted a breakfast meeting with China experts Jonathan Woetzel and Denis Simon. Woetzel is a partner in McKinsey & Company's Shanghai office as well as the director of McKinsey's Global Institute in Asia. He's spent 25 years working with companies in China, both Chinese and foreign owned.Simon is Provost and Vice President of Academic Affairs at Levin.
In opening remarks, Woetzel noted some important trends worth following.
-China has a high savings rate, something all Asian nations have in common
-China is increasingly becoming its own domestic market
-China has urbanized and currently has grown to 250 million people living in cities in the last 15-20 years. In 2030, he projects there will be some 1Billion people in cities alone.
-China has experienced 50 Billion dollars worth of Foreign Direct Investment in the last 15 years. Thirty percent of Chinese GDP capitalized stocks are owned by foreigners.
One big question he worried about is what the Chinese landscape will look like in 15 years, specifically, who will be participating.
China was described as a winner-take-all-society of aggressive competitiveness.The winners are those who "run faster' to adapt to local conditions, set a global standard and aspiration for their business, and take what they do well and adapt it to China.
Global companies with a significant Chinese presence will not be defined by nationalities, he said, but rather by capabilities. Smart companies that win in China will win everywhere.
Questions were asked about China's road from a factory floor economy to a knowledge economy. One answer was that while there is a high quality in the "raw material" of Chinese talent, that talent, or workforce, still needs finessing. With a winner take all, competitive atmosphere for entrepreneurs, people are not being allowed to fail. Even though the Chinese government recently took the unusual step of passing legislation which mandated failure to be ok, Chinese society is still not open to giving entrepreneurs a second chance. The open question is how successful the Chinese government, or any government for that matter, can be in declaring "thou shalt" or "thou shalt not" when talking about creating a creative class. It's still not clear whether China is successfully creating a culture of creativity...even though innovation has been embraced as key to their success.
Denis Simon commented that there are now 5 major continental entities that have emerged as key players in the global economy: China, India, Brazil, Russia and Mexico, all driven by a powerful "catch up" mentality and each one anxious to assert itself and its interests on the global playing field. What this means is that the way the international economy works in the 21st Century will be very different from how it worked in the 20th...and there is no going back to the old model.Clearly this huge paradigm shift will have a big impact on how the world works.
He added that Chinese leaders have embraced globalization, making it able to:
-attract huge foreign capital, both thru FDI and from joint ventures with foreign companies
-secure access to advanced technology through purchases and licensing of hardware and software (with some pirating and reverse engineering)
-send large numbers of students and scholars abroad to get advanced know how in science and engineering...and bring some of that knowledge back to China
-allow for the re-assertion of Chinese economic and technology interests on a worldwide scale through the growing outflow of capital and investment from China...and the growing participation of China in a broad range of regional and global bodies for setting technical standards and influencing the shape of a series of issue based regimes for management of global affairs.
Jonathan Woetzel concluded with an interesting comment that since nobody has inherited their company in China today these new opportunities make possible the incredible explosion of entrepreneurial energy.