January 23, 2004
China lead topic at Davos.
Business Week
reports that the booming Chinese economy is the lead topic at the World Economic Forum at Davos.
It's the usual biased type of reporng you'd expect from them. What's really curious is that in their limited world view the test of success of the Chinese economy is whether or not American and European investors can make money there. But was it necessary for Chinese investors to make money for the American economy to succeed? Of course not.
So why should it be the other way around? They don't need outside investment. It would be useful, certainly, but it's ludicrous to suggest it's essential. But they still have this archaic notion of China as a "third world" economy, that couldn't possibly have the resources or expertise to successfully manage its own affairs. Overseas Chinese have the largest pool of capital in the world now, and, along with the domestic investors, are more than able and willing to provide the money necessary. In fact though BW does acknowledge this, but then goes on to ignore it.
What's more, there seems to be no shortage of domestic, as well as investment, capital. China has a remarkable savings rate of about 40% of household income, one of the highest in the world. Total household savings now amount to around 100% of GDP -- three times as much as the country's total annual import bill. Foreign direct investment –- though vast –- is dwarfed by domestic investment. More than 90% of capital formation comes from within China, as Chinese companies increasingly focus on their home market.
Actually, it's the other way around. Corporate America and corporate Europe _need_ to be able to invest in China, since their companies are losing money in their own countries. They are desperate for new markets.
Another point that they seem to miss is this assumption that capital is still what's necessary to create business and to drive an economy. Which is an obsolete idea. There's no shortage of capital in the world anymore. If anything, there's an overabundance of it. What's needed now is creativity and hard work, which the Chinese have in abundance.
But they can't shake this view that unless the Americans, Europeans and Japanese are making money there, an economy is in bad shape. In the end, though, they acknowledge that the potential is greater than the problems.
Still, most delegates in Davos believe the Chinese are getting a handle on these problems. The banking system is being recapitalized. Government officials are more aware of the problems caused by intellectual-property theft. The country is moving irrevocably toward a free-market economy. And although inflation moved up to 3.2% in December, Paliwal insists it isn't causing investors great concern.
"China may be different, and it may be complicated," says Chu. "But it's improving every day -- and the opportunities are too huge to overlook."
The real problem, especially for Americans, is the almost complete lack of education about China in American schools, especially the language. The Chinese avidly study English, but very, very few Americans study Chinese. (Consider if you will how many of the people at Business Week actually know Chinese, and can even read their economic reports?) And it extends to the rest of the culture as well. The Chinese know almost all there is to know now about Euro-American medicine and science, but not vice-versa. And China has a long and sophisticated history of culture and science and technology. They're more than a match for any other culture. The same goes for India.
Anyway, if you're looking to invest in China, or the rest of Asia for that matter, I'd go to the
Asia Times rather than Business Week. The intellectual level is much higher, and they are so much more objective it is not even funny. Especially the works of Henry C. Liu, an Asian-American New York-based investment manager who writes for the Asian Times, and who has an absolutely superb grasp of the history and culture, and how it relates to the economy.
